Gains from trade liberalization with flexible extensive margin adjustment Article Swipe

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Economics Margin (machine learning) Statistic Welfare Econometrics Free trade Constant elasticity of substitution Liberalization Gains from trade Elasticity (physics) Productivity Elasticity of substitution Production (economics) Microeconomics International economics Macroeconomics Statistics Mathematics Computer science Market economy Materials science Machine learning Composite material

Chang‐Tai Hsieh , Nicholas Li , Ralph Ossa , Mu-Jeung Yang ·

YOU? · · 2023 · Open Access · · DOI: https://doi.org/10.1016/j.jinteco.2023.103756 · OA: W4362470740

We propose a sufficient statistic to measure the ex-post welfare gains from trade in CES models featuring any productivity distribution and any pattern of selection into production and exporting. This statistic is based on a single data moment, the change in the market share of continuing domestic producers, and a single structural parameter, the elasticity of substitution between products. We apply our statistic to measure Canada's gains from the Canada-US Free Trade Agreement using data on observed firm selection. We find that welfare gains can substantially deviate from welfare estimates implied by formulas that assume a constant extensive margin trade elasticity.