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From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity

Author

Listed:
  • Maria Bas

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Thierry Mayer

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Mathias Thoenig

    (CUI - Centre Universitaire d'Informatique - UNIGE - Université de Genève = University of Geneva)

Abstract
Models of heterogeneous firms with selection into export market participation generically exhibit aggregate trade elasticities that vary across country-pairs. Only when heterogeneity is assumed Pareto-distributed do all elasticities collapse into an unique elasticity, estimable with a gravity equation. This paper provides a theory-based method for quantifying country-pair specific elasticities when moving away from Pareto, i.e. when gravity does not hold. Combining two firm-level customs datasets for which we observe French and Chinese individual sales on the same destination market over the 2000-2006 period, we are able to estimate all the components of the dyadic elasticity: i) the demand-side parameter that governs the intensive margin and ii) the supply side parameters that drive the extensive margin. These components are then assembled under theoretical guidance to calculate bilateral aggregate elasticities over the whole set of destinations, and their decomposition into different margins. Our predictions fit well with econometric estimates, supporting our view that micro-data is a key element in the quantification of non-constant macro trade elasticities.

Suggested Citation

  • Maria Bas & Thierry Mayer & Mathias Thoenig, 2015. "From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity," SciencePo Working papers Main hal-01592899, HAL.
  • Handle: RePEc:hal:spmain:hal-01592899
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01592899
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    More about this item

    Keywords

    Firm-level data; Gravity; Heterogeneity; Log-normal; Pareto; Trade elasticity;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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