Trade Models, Trade Elasticities, and the Gains from Trade

48 Pages Posted: 22 Sep 2014

See all articles by Ina Simonovska

Ina Simonovska

University of California - Davis; National Bureau of Economic Research (NBER)

Michael E. Waugh

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

Date Written: September 2014

Abstract

We argue that the welfare gains from trade in new models with micro-level margins exceed those in frameworks without these margins. Theoretically, we show that for fixed trade elasticity, different models predict identical trade flows, but different patterns of micro-level price variation. Thus, given data on trade flows and micro-level prices, different models have different implied trade elasticities and welfare gains. Empirically, models with extensive or variable mark-up margins yield significantly larger welfare gains. The results are robust to incorporating into the estimation moment conditions that use trade-flow and tariff data, which imply a common trade elasticity across models.

Suggested Citation

Simonovska, Ina and Waugh, Michael E., Trade Models, Trade Elasticities, and the Gains from Trade (September 2014). NBER Working Paper No. w20495. Available at SSRN: https://ssrn.com/abstract=2499337

Ina Simonovska (Contact Author)

University of California - Davis ( email )

1 Shields Ave
Davis, CA 95616
United States

HOME PAGE: http://inasimonovska.weebly.com/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michael E. Waugh

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

269 Mercer Street
New York, NY 10003
United States

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