Gains from Trade with Flexible Extensive Margin Adjustment

30 Pages Posted: 21 Mar 2016 Last revised: 21 Apr 2022

See all articles by Chang-Tai Hsieh

Chang-Tai Hsieh

University of Chicago - Booth School of Business; University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Nicholas Li

University of Toronto - Department of Economics

Ralph Ossa

University of Chicago - Booth School of Business

Mu-Jeung Yang

University of Washington - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: March 2016

Abstract

We propose a new sufficient statistic to measure the gains from trade in models where the extensive margin trade elasticity is not necessarily constant. This statistic is a function of one data moment, the market share of continuing domestic products, and one parameter, the elasticity of substitution between products. It measures the gains from trade in a Ricardian model with any productivity distribution or a Melitz model with any productivity distribution and any pattern of selection into production and exporting. We apply our statistic to measure Canada's gains from the Canada-US Free Trade Agreement and find that they are smaller than suggested by statistics that assume a constant extensive margin response of trade.

Suggested Citation

Hsieh, Chang-Tai and Li, Nicholas and Ossa, Ralph and Yang, Mu-Jeung, Gains from Trade with Flexible Extensive Margin Adjustment (March 2016). NBER Working Paper No. w22069, Available at SSRN: https://ssrn.com/abstract=2752291

Chang-Tai Hsieh (Contact Author)

University of Chicago - Booth School of Business ( email )

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University of California, Berkeley - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Nicholas Li

University of Toronto - Department of Economics ( email )

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Toronto, Ontario M5S 3G7
Canada

Ralph Ossa

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Mu-Jeung Yang

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

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