Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade
American Economic Review
vol. 107,
no. 3, March 2017
(pp. 633-89)
(Complimentary)
Abstract
We develop a methodology to construct nonparametric counterfactual predictions, free of functional form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in the factor content of trade, factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions under which estimates of this system can be recovered nonparametrically. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China's recent integration into the world economy to illustrate the feasibility and potential benefits of our approach.Citation
Adao, Rodrigo, Arnaud Costinot, and Dave Donaldson. 2017. "Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade." American Economic Review, 107 (3): 633-89. DOI: 10.1257/aer.20150956Additional Materials
JEL Classification
- C51 Model Construction and Estimation
- D51 Exchange and Production Economies
- F11 Neoclassical Models of Trade
- F14 Empirical Studies of Trade
- O19 International Linkages to Development; Role of International Organizations
- P33 Socialist Institutions and Their Transitions: International Trade, Finance, Investment, Relations, and Aid