Trade Flows, Multilateral Resistance, and Firm Heterogeneity

December 20, 2012

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Alberto Behar, and Benjamin D. Nelson Trade Flows, Multilateral Resistance, and Firm Heterogeneity, (USA: International Monetary Fund, 2012) accessed November 21, 2024

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.

Subject: Exports, Imports, International trade, Multilateral trade, Plurilateral trade, Trade balance

Keywords: Country-pair GDP share, Exports, Firm heterogeneity, Global, Gravity models, Imports, Multilateral resistance, Multilateral trade, Plurilateral trade, Trade balance, Trade cost, Trade elasticities net, Trade elasticity, Trade flow, Trade friction, Trade response, World trade resistance, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/297
Stock No:

WPIEA2012297
ISBN:

9781475574081
ISSN:

1018-5941

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