Trade Models, Trade Elasticities, and the Gains from Trade
Year: 2025
Type: preprint
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.
DOI: 10.21034/sr.674
Authors: Ina Simonovska, Michael E. Waugh
Institution: Federal Reserve Bank of Minneapolis
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: gold
OpenAlex ID: W3148620269