Using the New Products Margin to Predict the Industry-Level Impact of Trade Reform

36 Pages Posted: 10 Dec 2013

See all articles by Timothy J. Kehoe

Timothy J. Kehoe

University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Jack Rossbach

Georgetown University, School of Foreign Service in Qatar

Kim J. Ruhl

New York University (NYU), Leonard N. Stern School of Business - Department of Economics

Date Written: December 2013

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

Kehoe, Timothy J. and Rossbach, Jack and Ruhl, Kim Joseph, Using the New Products Margin to Predict the Industry-Level Impact of Trade Reform (December 2013). NBER Working Paper No. w19692, Available at SSRN: https://ssrn.com/abstract=2366006

Timothy J. Kehoe (Contact Author)

University of Minnesota - Twin Cities - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Jack Rossbach

Georgetown University, School of Foreign Service in Qatar ( email )

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Doha
Qatar

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Kim Joseph Ruhl

New York University (NYU), Leonard N. Stern School of Business - Department of Economics ( email )

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Suite 9-160
New York, NY NY 10012
United States

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