International trade and monopolistic competition without CES : estimating translog gravity
Novy, Dennis (2010) International trade and monopolistic competition without CES : estimating translog gravity. Working Paper. Coventry: University of Warwick. Dept. of Economics. (Warwick economics research paper series (TWERPS)).
Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and rich substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country?s imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find strong empirical support in its favor. In an application to the currency union effect, I find that a currency union is only associated with substantially higher bilateral trade if the exporting country provides a small share of the destination country's imports. For other pairs, the currency union effect is modest or indistinguishable from zero.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HF Commerce|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||International trade -- Econometric models, Production functions (Economic theory), Monopolistic competition|
|Series Name:||Warwick economics research paper series (TWERPS)|
|Publisher:||University of Warwick. Dept. of Economics|
|Place of Publication:||Coventry|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
|Grant number:||RES-000-22-3112 (ESRC)|
|Version or Related Resource:||Novy, Dennis. (2012) International trade without CES : estimating translog gravity. Working Paper. Coventry, UK: Department of Economics, University of Warwick. (CAGE Online Working Paper Series, No.101/2012). http://wrap.warwick.ac.uk/id/eprint/57898 Novy, D. (2010). International trade without CES : estimating translog gravity. Working Paper. Coventry: Department of Economics, University of Warwick. (CAGE Online Working Paper Series, No.31). http://wrap.warwick.ac.uk/id/eprint/57575 Novy, D. (2010). International trade and monopolistic competition without CES : estimating translog gravity. Coventry: Department of Economics, University of Warwick. (The Warwick Economics Research Paper Series no. 929). http://wrap.warwick.ac.uk/id/eprint/3531 Novy, Dennis. (2013) International trade without CES : estimating translog gravity. Journal of International Economics, 89 (2). pp. 271-282. ISSN 0022-1996 http://wrap.warwick.ac.uk/id/eprint/50192 Novy, Dennis (2011). International trade and monopolistic competition without CES : estimating translog gravity. Invited Speaker : Why Open Regionalism Is Not Always Good. The Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham, 31 Jan 2011. http://wrap.warwick.ac.uk/id/eprint/44990|
|References:||Anderson, J., van Wincoop, E., 2003. Gravity with Gravitas: A Solution to the Border Puzzle. American Economic Review 93, pp. 170-192. Anderson, J., van Wincoop, E., 2004. Trade Costs. Journal of Economic Literature 42, pp. 691- 751. Badinger, H., 2007. Has the EU‟s Single Market Programme Fostered Competition? Testing for a Decrease in Mark-up Ratios in EU Industries. Oxford Bulletin of Economics and Statistics 69, pp. 497-519. Behrens, K., Mion, G., Murata, Y., Südekum, J., 2009. Trade, Wages and Productivity. Centre for Economic Policy Research Discussion Paper #7369. Bergin, P., Feenstra, R., 2009. Pass-Through of Exchange Rates and Competition between Floaters and Fixers. Journal of Money, Credit and Banking 41S, pp. 35-70. Bergstrand, J., 1985. The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence. Review of Economics and Statistics 67, pp. 474- 481. Bergstrand, J., 1989. The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade. Review of Economics and Statistics 71, pp. 143-153. Chaney, T., 2008. Distorted Gravity: The Intensive and Extensive Margins of International Trade. American Economic Review 98, pp. 1707-1721. Christensen, L., Jorgenson, D., Lau, L., 1971. Conjugate Duality and the Transcendental Logarithmic Function. Econometrica 39, pp. 255-256. Christensen, L., Jorgenson, D., Lau, L., 1975. Transcendental Logarithmic Utility Functions. American Economic Review 65, pp. 367-383. Deardorff, A., 1998. Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World? In: Jeffrey A. Frankel (Ed.), The Regionalization of the World Economy. Chicago: University of Chicago Press. Deaton, A., Muellbauer, J., 1980. An Almost Ideal Demand System. American Economic Review 70, pp. 312-326. Diewert, W.E., 1976. Exact and Superlative Index Numbers. Journal of Econometrics 4, pp. 115- 145. Disdier, A., Head, K., 2008. The Puzzling Persistence of the Distance Effect on Bilateral Trade. Review of Economics and Statistics 90, pp. 37-48. Eaton, J., Kortum, S., 2002. Technology, Geography and Trade. Econometrica 70, pp. 1741- 1779. Evenett, S., Keller, W., 2002. On Theories Explaining the Success of the Gravity Equation. Journal of Political Economy 110, pp. 281-316. Feenstra, R., 1994. New Product Varieties and the Measurement of International Prices. American Economic Review 84, pp. 157-177. Feenstra, R., 2003. A Homothetic Utility Function for Monopolistic Competition Models, without Constant Price Elasticity. Economics Letters 78, pp. 79-86. Feenstra, R., Kee, H.L., 2008. Export Variety and Country Productivity: Estimating the Monopolistic Competition Model with Endogenous Productivity. Journal of International Economics 74, pp. 500-518. Feenstra, R., Markusen, J., Rose, A., 2001. Using the Gravity Equation to Differentiate Among Alternative Theories of Trade. Canadian Journal of Economics 34, pp. 430-447. Feenstra, R., Weinstein, D., 2010. Globalization, Markups, and the U.S. Price Level. National Bureau of Economic Research Working Paper #15749. Glick, R., Rose, A., 2002. Does a Currency Union Affect Trade? The Time-Series Evidence. European Economic Review 46, pp. 1125-1151. Gohin, A., Femenia, F., 2009. Estimating Price Elasticities of Food Trade Functions. How Relevant is the CES-Based Gravity Approach? Journal of Agricultural Economics 60, pp. 253-272. Greene, W., 2008. Econometric Analysis, 6th edition. Upper Saddle River, New Jersey: Pearson. Head, K., Disdier, A., 2008. The Puzzling Persistence of the Distance Effect on Bilateral Trade. Review of Economics and Statistics 90, pp. 37-48. Head, K. and Ries, J., 2001. Increasing Returns Versus National Product Differentiation as an Explanation for the Pattern of US-Canada Trade. American Economic Review 91, pp. 858-876. Helpman, E., Melitz, M., Rubinstein, Y., 2008. Estimating Trade Flows: Trading Partners and Trading Volumes. Quarterly Journal of Economics 123, pp. 441-487. Hillberry, R., Hummels, D., 2008. Trade Responses to Geographic Frictions: A Decomposition Using Micro-Data. European Economic Review 52, pp. 527-550. Hummels, D., Klenow, P., 2005. The Variety and Quality of a Nation‟s Exports. American Economic Review 95, pp. 704-723. Kehoe, T., Ruhl, K., 2009. How Important is the New Goods Margin in International Trade? Federal Reserve Bank of Minneapolis Research Department, Staff Report 324. Komorovska, J., Kuiper, M., van Tongeren, F., 2007. Sharing Gravity: Gravity Estimates of Trade Shares in Agri-Food. Working Paper, OECD. Lo, L., 1990. A Translog Approach to Consumer Spatial Behavior. Journal of Regional Science 30, pp. 393-413. Markusen, J., 1986. Explaining the Volume of Trade: An Eclectic Approach. American Economic Review 76, pp. 1002-1011. Melitz, M., Ottaviano, G., 2008. Market Size, Trade, and Productivity. Review of Economic Studies 75, pp. 295-316. Nitsch, V., 2002. Honey, I Shrunk the Currency Union Effect on Trade. World Economy 25, pp. 457-474. Persson, R., 2001. Currency Unions and Trade: How Large is the Treatment Effect? Economic Policy 16, pp. 435-448. Quah, D., 2000. Discussion of “One Money, One Market: The Effect of Common Currencies on Trade.” Economic Policy 15, pp. 35-38. Rose, A., 2000. One Money, One Market: The Effect of Common Currencies on Trade. Economic Policy 15, pp. 9-45. Rose, A., Stanley, T., 2005. A Meta-Analysis of the Effect of Common Currencies on International Trade. Journal of Economic Surveys 19, pp. 347-365. Thom, R., Walsh, B., 2002. The Effect of a Currency Union on Trade: Lessons from the Irish Experience. European Economic Review 46, pp. 1111-1123. Volpe Martincus, C., Estevadeordal, A., 2009. Trade Policy and Specialization in Developing Countries. Review of World Economics 145, pp. 251-275.|
Available Versions of this Item
- International trade and monopolistic competition without CES : estimating translog gravity. (deposited 15 Nov 2010 14:41) [Currently Displayed]
Actions (login required)