Transitional Growth and Trade with Frictions: A Structural Estimation Framework. Issue 630 (19th February 2020)

• Record Type: Journal Article
• Authors: Anderson, James E; Larch, Mario; Yotov, Yoto V
• Is Part Of: Economic journal. Volume 130:Issue 630(2020)
• Page Start: 1583
• Page End: 1607
• Publication Date: 2020-02-19
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; 330.05
• DOI: 10.1093/ej/ueaa020
• Languages: English
• ISSNs: 0013-0133

Abstract

Abstract: We build and estimate a structural model of transitional growth and trade in a many-country world. The gravity model of trade is combined with a capital accumulation mechanism driving transition between steady states. Trade affects growth through changes in consumer and producer prices. Simultaneously, capital accumulation affects trade directly through changes in country size and indirectly through changes in the incidence of trade costs. Theory maps to an econometric system that identifies the parameters of the model and establishes causal links between trade, capital accumulation and income. Counterfactual trade liberalisation magnifies static gains by a dynamic path multiplier of 1.8.