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The gravity equation for trade flows is one of the most successful empirical models in economics and has long played a central role in the trade literature (Anderson, 2011). Different approaches to estimate the gravity equation, i.e. reduced-form or more structural, have been proposed. This paper examines the role of adding-up constraints as the key difference between structural gravity with "multilateral resistance" indexes and reduced-form gravity with simple fixed effects by exporter and importer. In particular, estimating gravity equations using the Poisson Pseudo-Maximum-Likelihood Estimator (Poisson PML) with fixed effects automatically satisfies these constraints and is consistent with the introduction of "multilateral resistance" indexes as in Anderson and van Wincoop (2003).

Zonder onderwerpscode: economie

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International supply chains require coordination of numerous activities across multiple countries and firms. We develop a theoretical model of supply chains in which the measure of tasks completed within a firm is determined by parameters that define transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs explain variation in supply chain length as well as cross-country variation in gross-output-to-value-added ratios. The structural parameters are linked to comparative advantage along and across supply chains. We provide an analytical treatment of trade and welfare responses to trade cost change in a simple two-country model. To explore the model's implications in a richer setting we calibrate the model to match key observables in East Asia, and evaluate implications of changes in model parameters for trade, welfare, the length of supply chains and countries' relative position within them.

Zonder onderwerpscode: economie

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Primary commodities are used as inputs into all production processes, yet they account for approximately 16 percent of world trade. Despite their share in trade, we show that the aggregate gains from trade are largely understated if we ignore key features of commodities: low price elasticities of demand (difficulty in finding substitutes), low price elasticities of supply, and high dispersion of natural resources across countries. We develop a general-equilibrium model of consumption, production, and input-output linkages that explicitly accounts for these features. Our simulations confirm that the gains from trade are significantly larger, especially when considering large trade cost changes.

Zonder onderwerpscode: economie