International Monetary Fund
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Washington, D.C. 20431
Institutional Affiliation: International Monetary Fund
NBER Working Papers and Publications
|February 2020||Gains from Trade: Does Sectoral Heterogeneity Matter?|
with Kei-Mu Yi, Hakan Yilmazkuday: w26741
This paper assesses the quantitative importance of including sectoral heterogeneity in computing the gains from trade. Our framework draws from Caliendo and Parro (2015) and has sectoral heterogeneity along five dimensions, including the elasticity of trade to trade costs. We estimate the sectoral trade elasticity with the Simonovska and Waugh (2014) simulated method of moments estimator and micro price data. Our estimates range from 2.97 to 8.94. Our benchmark model is calibrated to 21 OECD countries and 20 sectors. We remove one or two sources of sectoral heterogeneity at a time, and compare the gains from trade to the benchmark model. We also compare an aggregate model with a single elasticity to the benchmark model. Our main result from these counterfactual exercises is that sectoral h...