Working Paper: CEPR ID: DP10637
Authors: Maria Bas; Thierry Mayer; Mathias Thoenig
Abstract: Models of heterogeneous firms with selection into export market participation generically exhibit aggregate trade elasticities that vary across country-pairs. Only when heterogeneity is assumed Pareto-distributed do all elasticities collapse into an unique elasticity, estimable with a gravity equation. This paper provides a theory-based method for quantifying country-pair specific elasticities when moving away from Pareto, i.e. when gravity does not hold. Combining two firm-level customs datasets for which we observe French and Chinese individual sales on the same destination market over the 2000-2006 period, we are able to estimate all the components of the dyadic elasticity: i) the demand-side parameter that governs the intensive margin and ii) the supply side parameters that drive the extensive margin. These components are then assembled under theoretical guidance to calculate bilateral aggregate elasticities over the whole set of destinations, and their decomposition into different margins. Our predictions fit well with econometric estimates, supporting our view that micro-data is a key element in the quantification of non-constant macro trade elasticities.
Keywords: firm-level data; gravity; heterogeneity; lognormal; pareto; trade elasticity
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Microdata (C81) | improved accuracy of estimating trade elasticities (F14) |
| Market ease (G14) | impact on extensive margin of trade (F10) |
| Heterogeneous firms with Pareto distribution (D39) | single estimate of trade elasticities (F14) |
| Moving away from Pareto (D39) | dyad-specific elasticities (C69) |
| Applied tariffs (F13) | estimated demand-side elasticity (D12) |
| Higher tariffs (F19) | export volumes (F10) |