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  4. April 2023
  5. The Long and Short (Run) of Trade Elasticities

The Long and Short (Run) of Trade Elasticities

  • Christoph E. Boehm
  • Andrei A. Levchenko
  • Nitya Pandalai-Nayar
American Economic Review
vol. 113, no. 4, April 2023
(pp. 861-905)
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Abstract

When countries change most favored nation (MFN) tariffs, partners that trade on MFN terms experience plausibly exogenous tariff changes. Using this variation, we estimate the trade elasticity at short and long horizons with local projections. We find that the elasticity of tariff-exclusive trade flows is −0.76 in the short run, and approximately −2 in the long run. Our long-run estimates are smaller than typical in the literature, and it takes 7 to10 years to converge to the long run, implying that (i) the welfare gains from trade are high and (ii) there are substantial convexities in the costs of adjusting exports.

Citation

Boehm, Christoph E., Andrei A. Levchenko, and Nitya Pandalai-Nayar. 2023. "The Long and Short (Run) of Trade Elasticities." American Economic Review, 113 (4): 861-905. DOI: 10.1257/aer.20210225

Additional Materials

JEL Classification

  • C51 Model Construction and Estimation
  • F13 Trade Policy; International Trade Organizations
  • F14 Empirical Studies of Trade