Trade Flows, Multilateral Resistance, and Firm Heterogeneity

Author/Editor:

Alberto Behar ; Benjamin D. Nelson

Publication Date:

December 20, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selection into trade, while accommodating asymmetries in trade flows. A new equation for the proportion of exporting firms takes a gravity form, such that the extensive margin is also affected by multilateral resistance. We develop Taylor approximated multilateral resistance terms with which to capture the comparative static effects of changes in trade costs. For isolated bilateral changes in trade frictions, multilateral resistance effects are small for most countries. However, if all countries reduce their trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in most cases, despite the larger trade elasticities implied by firm heterogeneity. As a consequence, the world-wide trade response, though positive, is much lower.

Series:

Working Paper No. 12/297

Subject:

English

Publication Date:

December 20, 2012

ISBN/ISSN:

9781475574081/1018-5941

Stock No:

WPIEA2012297

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

39

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