Product-Level Trade Elasticities

Abstract

Trade elasticity is a crucial parameter in evaluating the welfare impacts of trade liberalization. We estimate trade elasticities at the product level (6-digit of the Harmonized System comprising more than 5,000 product categories) by exploiting the variation in bilateral applied tariffs for each product category for the universe of available country pairs. This is done by constructing a panel of bilateral applied tariffs and bilateral trade covering the period 2001 to 2016. We address potential endogeneity issues as well as heteroskedasticity and selection bias due to zero flows. The obtained trade elasticities are centered around -5. We finally highlight the differences in the gains from trade arising from considering heterogeneous rather than average trade elasticities. All product level elasticities are made publicly available for sake of scrutiny and use by other researchers.

Keywords: Trade Elasticity, International Trade, Tariffs, Welfare Gain

JEL Classification: F14, F17