NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Mykyta Vesselovsky

Foreign Affairs and International Trade
125 Sussex Drive
Ottawa, ON, Canada K1A OG2

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NBER Working Papers and Publications

February 2013Gravity, Scale and Exchange Rates
with James E. Anderson, Yoto V. Yotov: w18807
We develop a structural gravity model that introduces scale effects in bilateral trade. Scale effects and incomplete passthrough give two channels through which exchange rates have real effects on trade patterns. Estimates from Canadian provincial trade data identify these effects through their interaction with the US border. We find statistically and quantitatively significant economies of scale in cross-border trade in almost 2/3 of sectors. Real effects of exchange rate changes on trade are found for 12 of 19 goods sectors and none of 9 services sectors.
 
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