NBER Working Papers by Michael E. Waugh

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September 2014Trade Models, Trade Elasticities, and the Gains from Trade
with Ina Simonovska: w20495
We argue that the welfare gains from trade in new models with micro-level margins exceed those in frameworks without these margins. Theoretically, we show that for fixed trade elasticity, different models predict identical trade flows, but different patterns of micro-level price variation. Thus, given data on trade flows and micro-level prices, different models have different implied trade elasticities and welfare gains. Empirically, models with extensive or variable mark-up margins yield significantly larger welfare gains. The results are robust to incorporating into the estimation moment conditions that use trade-flow and tariff data, which imply a common trade elasticity across models.
International Trade and Intertemporal Substitution
with Fernando Leibovici: w20498
This paper studies the dynamics of international trade flows at business cycle frequencies. We show that introducing dynamic considerations into an otherwise standard model of trade can account for several puzzling features of trade flows at business cycle frequencies. Our insight is that because international trade is time-intensive, variation in the rate at which agents are willing to substitute across time affects how trade volumes respond to changes in output and prices. We formalize this idea and calibrate our model to match key features of U.S. data. We find that, in contrast to standard static models of international trade, our model is quantitatively consistent with salient features of U.S. cyclical import fluctuations. We also find that our model accounts for two-thirds of the pea...
November 2013The Agricultural Productivity Gap
with Douglas Gollin, David Lagakos: w19628
According to national accounts data, value added per worker is much higher in the non-agricultural sector than in agriculture in the typical country, and particularly so in developing countries. Taken at face value, this "agricultural productivity gap" suggests that labor is greatly misallocated across sectors. In this paper, we draw on new micro evidence to ask to what extent the gap is still present when better measures of sector labor inputs and value added are taken into consideration. We find that even after considering sector differences in hours worked and human capital per worker, as well as alternative measures of sector output constructed from household survey data, a puzzlingly large gap remains.
February 2011The Elasticity of Trade: Estimates and Evidence
with Ina Simonovska: w16796
Quantitative results from a large class of structural gravity models of international trade depend critically on the elasticity of trade with respect to trade frictions. We develop a new simulated method of moments estimator to estimate this elasticity from disaggregate price and trade-flow data and we use it within Eaton and Kortum's (2002) Ricardian model. We apply our estimator to disaggregate price and trade-flow data for 123 countries in the year 2004. Our method yields a trade elasticity of roughly four, nearly fifty percent lower than Eaton and Kortum's (2002) approach. This difference doubles the welfare gains from international trade.

Published: Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50. citation courtesy of

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