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How important is the new goods margin in international trade?

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  • Timothy J. Kehoe
  • Kim J. Ruhl

Abstract

We propose a methodology for studying changes in bilateral trade due to countries exporting goods that they did not export previously or exported only in small quantities. Applying this methodology to country pairs that undergo trade liberalization and to pairs in which one of the countries undergoes significant structural transformation, we find large increases on this extensive?or new goods?margin. Looking at country pairs with no major trade policy change or structural change, however, we find little or no increases on the extensive margin. Studying time series on trade by commodity, we find that data from before 1988 and 1989, when most major trading countries moved to the Harmonized System, are not compatible with data from afterward.

Suggested Citation

  • Timothy J. Kehoe & Kim J. Ruhl, . "How important is the new goods margin in international trade?," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:324
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    References listed on IDEAS

    as
    1. Kraay, Aart & Ventura, Jaume, 2002. "Trade integration and risk sharing," European Economic Review, Elsevier, vol. 46(6), pages 1023-1048, June.
    2. 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.
    3. 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 823-839, December.
    4. Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report, Federal Reserve Bank of Minneapolis.
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    Keywords

    International trade; Free trade;

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