Growth and Trade with Frictions: A Structural Estimation Framework

70 Pages Posted: 20 Jul 2015 Last revised: 31 May 2023

See all articles by James E. Anderson

James E. Anderson

Boston College - Department of Economics; National Bureau of Economic Research (NBER)

Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics; University of Bayreuth; CESifo; Ifo Institute for Economic Research; GEP at the University of Nottingham; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Yoto V. Yotov

Drexel University - Department of Economics & International Business

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Date Written: July 2015

Abstract

We build and estimate a structural dynamic general equilibrium model of growth and trade. Trade affects growth through changes in consumer and producer prices that in turn stimulate or impede physical capital accumulation. At the same time, growth affects trade, directly through changes in country size and indirectly through altering the incidence of trade costs. The model combines structural gravity with a capital accumulation specification of the transition between steady states. Theory translates into an intuitive econometric system that identifies the causal impact of trade on income and growth, and also delivers estimates of the key structural parameters in our model. Counterfactual experiments based on the estimated model give evidence for strong dynamic relationships between growth and trade, resulting in doubling of the static gains from trade liberalization.

Suggested Citation

Anderson, James E. and Larch, Mario and Yotov, Yoto, Growth and Trade with Frictions: A Structural Estimation Framework (July 2015). NBER Working Paper No. w21377, Available at SSRN: https://ssrn.com/abstract=2633333

James E. Anderson (Contact Author)

Boston College - Department of Economics ( email )

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Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics ( email )

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University of Bayreuth ( email )

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Ifo Institute for Economic Research ( email )

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Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

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Yoto Yotov

Drexel University - Department of Economics & International Business ( email )

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United States

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