The elasticity of trade : estimates and evidence

Quantitative results from a large class of structural gravity models of international trade depend critically on a single parameter governing the elasticity of trade with respect to trade frictions. We provide a new method to estimate this elasticity and illustrate the merits of our approach relative to the estimation strategy of Eaton and Kortum (2002). We employ this method on data for 123 developed and developing countries for the year 2004 using new disaggregate price and trade flow data. Our benchmark estimate for all countries is approximately 4.5, nearly 50 percent lower than the alternative estimation strategy would suggest. This difference implies a doubling of the measured welfare costs of autarky across a large class of widely used trade models

National Borders, Trade and Migration

The paper first extends and reconciles recent estimates of the strikingly large effect of national borders on trade patterns. Estimates comparing trade among Canadian provinces with that between Canadian provinces and U.S. states show interprovincial trade in 1988-90 to have been more than twenty times as dense as that between provinces and states, with some evidence of a downward trend since, due to the post-FTA growth in trade between Canada and the United States. Using approximate data for the volumes and distances of internal trade in OECD countries, the 1988-92 border effect for unrelated OECD countries is estimated to exceed 12. Both types of data confirm substantial border effects, even after accounting for common borders and language, with the directly-measured data for interprovincial and province-state trade producing higher estimates." Initial estimates from a census-based gravity model of interprovincial and international migration show a much higher border effect for migration, with interprovincial migration among the Anglophone provinces almost 100 times as dense as that from U.S. states to Canadian provinces. Effects of migration on subsequent trade patterns are found for international but not for interprovincial trade, suggesting the existence of nationally-shared networks the large national border effects for trade flows.

The Elasticity of Trade: Estimates & Evidence

Quantitative results from a large class of structural gravity models of international trade depend critically on a single parameter governing the elasticity of trade with respect to trade frictions. We provide a newmethod to estimate this elasticity and illustrate themerits of our approach relative to the estimation strategy of Eaton and Kortum (2002). We employ this method on data for 123 developed and developing countries for the year 2004 using new disaggregate price and trade flowdata. Our benchmark estimate for all countries is approximately 4.5, nearly 50 percent lower than the alternative estimation strategywould suggest. This difference implies a doubling of the measured welfare costs of autarky across a large class of widely used trade models.elasticity of trade, bilateral; gravity; price dispersion; indirect inference.

EUROPEAN UNION ENLARGEMENT: WHAT ARE THE AGRICULTURAL TRADE MODELS MISSING?

This paper quantifies the potential impact of European Union enlargement and the consequences of ignoring the non-agricultural component of this integration. We find that agriculture-focused studies offer sound estimates of agriculture-specific production and trade changes, but the estimates of trade volume changes, and welfare gains are far too low.International Relations/Trade,

Estimating the impact of currency unions on trade using a dynamic gravity framework

This paper revisits the early time series estimates of currency unions on trade from an historical perspective using a dynamic gravity equation and by conducting in-depth case studies of currency union breakups. The early large estimates were driven by omitted variables, as many currency union exits were coterminous with warfare, communist takeovers, coup d'etats, genocide, bloody wars of independence, various other geopolitical travesties, or were predated by trade collapses. Static gravity estimates are found to be sensitive to controlling for these omitted variables, while a dynamic gravity specification implies that currency unions do not increase trade.Currency Unions, Trade, Dynamic Gravity, Decolonization

The impact of immigration on international trade: a meta‐analysis

Since the early 1990s many studies have been conducted on the impact of international migration on international trade, predominantly from the host country perspective. Because most studies have adopted broadly the same specification, namely a log‐linear gravity model of export and import flows augmented with the logarithm of the stock of immigrants from specific source countries as an additional explanatory variable, the resulting elasticities are broadly comparable and yield a set of estimates that is well suited to meta‐analysis. We therefore compile and analyze in this paper the distribution of immigration elasticities of imports and exports across 48 studies that yielded 300 estimates. The results confirm that immigration boosts trade, but its impact is lower on trade in homogeneous goods. An increase in the number of immigrants by 10 percent increases the volume of trade by about 1‐2 percent The migrant elasticity of imports is on average similar to that of exports. The estimates are affected by the choice of some covariates, the nature of the data (cross‐section or panel) and the estimation technique. Elasticities vary between countries in ways that cannot be explained by study characteristics; host country differences in immigration policies do apparently matter for the trade impact. The trade‐enhancing impact of migration appears to be greater for migration between countries of different levels of development than between developed countries

Novel indicators of the trade and welfare effects of agricultural distortions in OECD countries

Agricultural markets in OECD countries have long been highly distorted by government policies. Traditional weighted average aggregates of the price distortions involved, such as producer and consumer support estimates can be poor indicators of the trade restrictiveness and economic welfare losses associated with them, especially if a country's support estimates vary a lot across the product range. Certainly estimates of trade and welfare effects of price supports can be obtained from sector or economy-wide models using price elasticity estimates, but the results can be contentiousif there is no consensus on what model specification and elasticity parameters to use. This paper shows that, if there is a willingness to accept simple assumptions about elasticities, it is possible to generate indicators of the welfare and trade restrictiveness of agricultural policies using no more than the price and quantity data needed to generate producer and consumer support estimates. These new indexes thus provide an attractive supplement to the current policy monitoring regime developed by the OECD Secretariat.Economic Theory&Research,Markets and Market Access,Emerging Markets,Crops&Crop Management Systems,Free Trade

Reciprocal trade agreements in gravity models: a meta-analysis

Over the time a large number of reciprocal preferential trade agreements (RTAs) have been concluded among countries. Recently many studies have used gravity equations in order to estimate the effect of RTAs on trade flows between partners. These studies report very different estimates, since they differ greatly in data sets, sample sizes, and independent variables used in the analysis. So, what is the “true” impact of RTAs? This paper combines, explains, and summarizes a large number of results (1460 estimates included in 75 papers), using a meta-analysis (MA) approach. Notwithstanding quite an high variability, studies consistently find a positive RTAs impact on bilateral trade: the hypothesis that there is no effect of trade agreements on trade is easily and robustly rejected at standard significance levels. We provide pooled estimates, obtained from fixed and random effects models, of the increase in bilateral trade due to RTAs. Finally, information collected on each estimate allows us to test the sensitivity of the results to alternative specifications and differences in the control variables considered.Free Trade Agreements; Gravity equation; Meta-regression analysis; Publication bias.

New Indicators of How Much Agricultural Policies Restrict Global Trade

Despite recent reforms, world agricultural markets remain highly distorted by government policies. Traditional indicators of agricultural and food price distortions such as producer and consumer support estimates (PSEs and CSEs) can be poor guides to the policiesÂ’ trade effects. Two recent studies provide much better indicators of trade- (and welfare-)reducing effects of farm price and trade policies, but they provide somewhat differing numbers. This paper explains why those estimates differ and how they might be improved for use in on-going annual monitoring of the trade restrictiveness of agricultural policies in both high-incmoe and developing countries.Agricultural policies, trade restrictiveness indexes, food price distortions