Gains from Trade: Does Sectoral Heterogeneity Matter?

57 Pages Posted: 11 Feb 2020 Last revised: 25 Jan 2023

See all articles by Rahul Giri

Rahul Giri

Centro de Investigación (CIE), Instituto Tecnológico Autónomo de México (ITAM); International Monetary Fund (IMF)

Kei-Mu Yi

University of Houston

Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2020

Abstract

This paper assesses the quantitative importance of including sectoral heterogeneity in computing the gains from trade. Our framework draws from Caliendo and Parro (2015) and has sectoral heterogeneity along five dimensions, including the elasticity of trade to trade costs. We estimate the sectoral trade elasticity with the Simonovska and Waugh (2014) simulated method of moments estimator and micro price data. Our estimates range from 2.97 to 8.94. Our benchmark model is calibrated to 21 OECD countries and 20 sectors. We remove one or two sources of sectoral heterogeneity at a time, and compare the gains from trade to the benchmark model. We also compare an aggregate model with a single elasticity to the benchmark model. Our main result from these counterfactual exercises is that sectoral heterogeneity does not always lead to an increase in the gains from trade, which is consistent with the theory.

Suggested Citation

Giri, Rahul and Yi, Kei-Mu and Yilmazkuday, Hakan, Gains from Trade: Does Sectoral Heterogeneity Matter? (February 2020). NBER Working Paper No. w26741, Available at SSRN: https://ssrn.com/abstract=3535331

Rahul Giri (Contact Author)

Centro de Investigación (CIE), Instituto Tecnológico Autónomo de México (ITAM) ( email )

Av. Camino a Santa Teresa #930
Col. Heroes de Padierna
Mexico City, D.F. 10370
Mexico

HOME PAGE: http://ciep.itam.mx/~rahul.giri/

International Monetary Fund (IMF)

Kuwait

Kei-Mu Yi

University of Houston ( email )

Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics ( email )

11200 SW 8th Street
Miami, FL 33199
United States

HOME PAGE: http://faculty.fiu.edu/~hyilmazk/

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