TY - CEPII
A1 - Maria Bas
A1 - Thierry Mayer
A1 - Mathias Thoenig
TI - From Micro to Macro: Demand, Supply, and Heterogeneity in the Trade Elasticity
IS - 2015-07
T3 - Working Papers
KW - trade elasticity
KW - firm-level data
KW - heterogeneity
KW - gravity
KW - Pareto
N2 - 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.
ER -