Quantifying the Extensive Margins of Trade and Production — David Torun

Speaker

David Torun, Ph.D., (University of St.Gallen)

Abstract

This paper builds a Ricardian model of international trade capturing that most countries have only a few trading partners within narrowly defined industries. The set of partner countries responds endogenously to shocks, thereby allowing to identify alternatives to key trading partners. I introduce trade zeros—or, an extensive margin of trade—via a bounded productivity distribution and a non-homothetic final-goods-assembly function. In the limit, without productivity caps, trade shares reduce to a standard gravity equation. I develop a novel calibration strategy to fit data on industry-level bilateral trade flows and aggregate production. Counterfactual exercises suggest that welfare changes after trade-cost shocks are typically amplified when accounting for the extensive margin of trade. This is primarily true for low- to medium-income countries. The number of inactive industry-level trade relations changes by approximately half the shock size; for instance, a 10% rise in global trade costs increases the number of bilateral zeros by 5%.

Room

Virtually via Zoom and in Medienraum (A-211) (limited capacity) at the Kiel Institute

If interested, please send an Email to kcg-office@ifw-kiel.de to receive a Zoom-Link for the seminar