International Trade without CES: Estimating Translog Gravity

This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and 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.


Issue Date:
2010-11
Publication Type:
Working or Discussion Paper
Record Identifier:
http://ageconsearch.umn.edu/record/271178
Language:
English
Total Pages:
35
JEL Codes:
F11; F12; F15
Series Statement:
WERP 929




 Record created 2018-04-11, last modified 2018-04-11

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