Working Paper: NBER ID: w28278
Authors: James E. Anderson; Penglong Zhang
Abstract: Almost Ideal gravity associates zero trade flows with variable and fixed trade cost variation in a flexible demand system. Latent trade shares between non-partners are inferred from the Tobit estimator applied to trade among 75 countries and 25 sectors in 2006. Latent Trade Bias (LTB) is the difference between the latent trade share and the as-if-frictionless trade share. Explained LTB variance decomposition shows 52% due to variation of variable trade cost, 24% due to non-homothetic income effects, and 24% due to fixed trade cost effects. Counterfactual variable (fixed) cost reductions suggest cases of successful export promotion between non-partners.
Keywords: No keywords provided
JEL Codes: F13; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| choke price variation + fixed export costs (F10) | zero trade flows (F19) |
| variable cost variation (D24) | latent trade bias (LTB) (C92) |
| fixed costs (D24) | latent trade bias (LTB) (C92) |
| non-homothetic income effects (H31) | latent trade bias (LTB) (C92) |
| reduction in variable costs (D24) | increase in trade flows (F19) |
| reduction in fixed costs (G31) | increase in trade flows (F19) |
| elimination of bilateral variable costs (D21) | decrease in zero flows (E50) |
| elimination of fixed costs (D21) | decrease in zero flows (E50) |
| 10% reduction in variable costs (D22) | larger number of new trading partners (F10) |
| 10% reduction in fixed costs (D24) | smaller number of new trading partners (F10) |