How Important is the New Goods Margin in International Trade?

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How Important is the New Goods Margin in International Trade?

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Timothy J. Kehoe () (University of Minnesota)
Kim J. Ruhl

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Abstract

We examine the bilateral trade patterns of countries involved in significant trade liberalizations using detailed data on the value of trade flows by commodity. We find a striking relationship between a good's pre-liberalization share in trade and its growth subsequent to liberalization. The goods that were traded the least before the liberalization account for a disproportionate share in trade following the reduction of trade barriers. The set of goods that accounted for only 10 percent of trade before the liberalization may account for as much as 40 percent of trade following the liberalization. This new finding cannot be accounted for by the standard models of trade, which rely on increases in previously traded goods to produce trade growth. We modify the standard Dornbusch-Fischer-Samuelson model of Ricardian trade to provide a model capable of delivering these new facts. Our specification improves on previous Ricardian models by providing a technology process that can be calibrated using data on intra-industry trade

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 733.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:733

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Paper
- Timothy J. Kehoe & Kim J. Ruhl, 2003. "How important is the new goods margin in international trade?," Staff Report 324, Federal Reserve Bank of Minneapolis. [Downloadable!]

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-01-13 (All new papers)
NEP-INT-2007-01-13 (International Trade)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February. [Downloadable!] (restricted)
Other versions:
- Paul M. Romer, 1994. "New Goods, Old Theory, and the Welfare Costs of Trade Restrictions," NBER Working Papers 4452, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
Other versions:
- Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December. [Downloadable!] (restricted)
Kraay, Aart & Ventura, Jaume, 2002. "Trade integration and risk sharing," European Economic Review, Elsevier, vol. 46(6), pages 1023-1048, June. [Downloadable!] (restricted)
Other versions:
- Aart Kraay & Jaume Ventura, 2002. "Trade Integration and Risk Sharing," NBER Working Papers 8804, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report 320, Federal Reserve Bank of Minneapolis. [Downloadable!]
Other versions:
- Timothy J. Kehoe, 2003. "An Evaluation of the Performance of Applied General Equilibrium Models of the Impact of NAFTA," Levine's Bibliography 506439000000000525, UCLA Department of Economics. [Downloadable!]

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