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Using the new products margin to predict the industry-level impact of trade reform

Author

Listed:
  • Timothy J. Kehoe
  • Jack Rossbach
  • Kim J. Ruhl

Abstract

This paper develops a methodology for predicting the impact of trade liberalization on exports by industry (3-digit ISIC) based on the pre-liberalization distribution of exports by product (5-digit SITC). Using the results of Kehoe and Ruhl (2013) that much of the growth in trade after trade liberalization is in products that are traded very little or not at all, we predict that industries with a higher share of exports generated by least traded products will experience more growth. Using our methodology, we develop predictions for industry-level changes in trade for the United States and Korea following the U.S.-Korea Free Trade Agreement (KORUS). As a test for our methodology, we show that it performs significantly better than the applied general equilibrium models originally used for the policy evaluation of the North American Free Trade Agreement (NAFTA).

Suggested Citation

  • Timothy J. Kehoe & Jack Rossbach & Kim J. Ruhl, . "Using the new products margin to predict the industry-level impact of trade reform," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:492
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    References listed on IDEAS

    as
    1. Cox, David & Harris, Richard, 1985. "Trade Liberalization and Industrial Organization: Some Estimates for Canada," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 115-145, February.
    2. Francois, Joseph F. & Rivera, Luis & Rojas-Romagosa, Hugo, 2006. "Economic Perspectives for Central America after CAFTA: A GTAP-based Analysis," Conference papers 331546, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Hugo Rojas-Romagosa & J.F. Francois & L. Rivera, 2008. "Economic perspectives for Central America after CAFTA; a GTAP-based analysis," CPB Discussion Paper 99.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
    5. Markus Lips & Peter Rieder, 2005. "Abolition of Raw Milk Quota in the European Union: A CGE Analysis at the Member Country Level," Journal of Agricultural Economics, Wiley Blackwell, vol. 56(1), pages 1-17, March.
    6. Kozo Kiyota & Robert M. Stern, 2007. "Economic Effects of a Korea-U.S. Free Trade Agreement," Working Papers 557, Research Seminar in International Economics, University of Michigan.
    7. Kehoe,Timothy J. & Srinivasan,T. N. & Whalley,John (ed.), 2005. "Frontiers in Applied General Equilibrium Modeling," Cambridge Books, Cambridge University Press, number 9780521825252, November.
    8. 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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    Cited by:

    1. Rodrigo Adão & Costas Arkolakis & Sharat Ganapati, 2020. "Aggregate Implications of Firm Heterogeneity: A Nonparametric Analysis of Monopolistic Competition Trade Models," Working Papers 2020-161, Becker Friedman Institute for Research In Economics.
    2. Rod Falvey & Neil Foster-McGregor, 2022. "The breadth of preferential trade agreements and the margins of exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(1), pages 181-251, February.

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