Gains from trade

Demand, supply, and idiosyncratic shocks

Bibliographic Data

ID21653221
AuthorsRuben Dewitte (0000-0002-3648-5586, Ghent University Ghent Belgium, corresponding author), Bruno Merlevede (0000-0002-5707-1155, Ghent University Ghent Belgium), Glenn Rayp (0000-0002-3240-6844, Ghent University Ghent Belgium)
Year2024
Volume39
Issue5
Pages870-886
Publication date2024-08-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueJournal of Applied Econometrics (JOURNAL)
Journal identifiersISSN: 1099-1255 • E-ISSN: 0883-7252
PublisherWiley (PUBLISHER • GB)
DOI10.1002/jae.3051
OpenAlexW4396223057
LanguageEN
References cited43

Firm‐level sales are often used as a proxy for productivity to quantify welfare gains from trade (GFT) using firm‐level data. This approach ignores the fact that heterogeneity in firm‐level sales is driven by factors other than productivity. Our theoretical and empirical analysis reveals that using sales as a proxy conflates persistent productivity with transitory demand and supply shocks, resulting in an over‐dispersed productivity distribution. Assigning this shock‐inflated productivity to a modeled economy's supply‐side results in overestimated GFT. We show how to obtain unbiased productivity estimates, aggregate trade elasticities, and GFT estimates by exploiting the revenue production function from a single‐source country

Demand shock · Econometrics · Economics · Macroeconomics · Microeconomics · Monetary economics · Productivity · Revenue · Supply shock · Welfare · Fiscal Policy and Economic Growth · Global trade and economics · Monetary Policy and Economic Impact

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