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Estimating Trade Elasticities and Asymmetric Trade Costs under Firm Heterogeneity

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  • Bekkers, Eddy

Abstract

Taking Örst order Taylor approximations an empirical strategy is proposed to estimate the trade elasticity using data on import shares, distance and gross output. The strategy is proposed for a Melitz economy. It consists of deriving two gravity type equations, a conventional gravity equation and a new gravity equation based upon the weighted sums of the import shares across trading partners. The new gravity equation follows from general equilibrium conditions on input cost adjustment. Using the estimates from the conventional gravity equation in the new gravity equation enables identiÖcation of the trade elasticity using only distance data. Employing the NBER-UN world trade data (Feenstra, 2005) for the largest 48 economies in the world at the aggregate level a trade elasticity of around two is found.

Suggested Citation

  • Bekkers, Eddy, 2013. "Estimating Trade Elasticities and Asymmetric Trade Costs under Firm Heterogeneity," Conference papers 332379, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332379
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    References listed on IDEAS

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    1. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    2. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Bonus vetus OLS: A simple method for approximating international trade-cost effects using the gravity equation," Journal of International Economics, Elsevier, vol. 77(1), pages 77-85, February.
    3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    4. repec:hal:spmain:info:hdl:2441/6apm7lruv088iagm4rv2c33jtg is not listed on IDEAS
    5. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," SciencePo Working papers hal-03579844, HAL.
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