Working Paper: NBER ID: w18807
Authors: James E. Anderson; Mykyta Vesselovsky; Yoto V. Yotov
Abstract: We develop a structural gravity model that introduces scale effects in bilateral trade. Scale effects and incomplete passthrough give two channels through which exchange rates have real effects on trade patterns. Estimates from Canadian provincial trade data identify these effects through their interaction with the US border. We find statistically and quantitatively significant economies of scale in cross-border trade in almost 2/3 of sectors. Real effects of exchange rate changes on trade are found for 12 of 19 goods sectors and none of 9 services sectors.
Keywords: Gravity model; Exchange rates; Trade patterns; Scale effects; Incomplete passthrough
JEL Codes: F10; F40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate changes (F31) | trade patterns (F10) |
| economies of scale in cross-border trade (F12) | trade costs (F19) |
| exchange rate changes (F31) | trade volumes (F10) |
| exchange rate changes (F31) | trade flows (F10) |
| no real effects (Y70) | goods sectors (L67) |