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Using Power Laws to Identify the Structural Parameters of Trade Models with Firm Heterogeneity

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  • Ahmad, Saad
  • Akgul, Zeynep

Abstract

While various firm heterogeneity models of trade have recently emerged in the CGE literature, their mainstream adoption in trade policy analysis has been limited partly due to lack of available parameter estimates at the disaggregated sector level. In particular, the productivity dispersion and substitution elasticity parameters need to be estimated in a manner consistent with the theoretical underpinnings of the firm heterogeneity framework. In this paper we address this gap by estimating the productivity dispersion parameter by using ORBIS firm-level data and imputing substitution elasticities by fitting the firm size distribution and productivity distribution to the Pareto distribution.

Suggested Citation

  • Ahmad, Saad & Akgul, Zeynep, 2018. "Using Power Laws to Identify the Structural Parameters of Trade Models with Firm Heterogeneity," Conference papers 332993, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332993
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    1. Oliveira, Paulo Felipe & Cordeiro, Pedro Antero, 2023. "Trade policy analysis in Brazil: Assessing welfare impacts with revised Armington elasticities," Economic Modelling, Elsevier, vol. 129(C).

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