Non-Homothetic Gravity

Transcription

1 Non-Homothetic Gravity by Weisi Xie (University of Colorado at Boulder) Discussion by Isaac Baley New York University August 14, 2014 Discussion by Baley (NYU) Non-Homothetic Gravity by Xie August 14, / 7

2 Highlights of the paper Core of the paper Bilateral trade between exporter i and importer j in sector h: log Xij h log Y i + θ h log(ti h w i ) comp. adv. + θ h a h log L j + ηh b j α log y j + σh η h σ h 1 Φh j mkt size pc. income closeness ) θ h log dij h (1 + θh log f σ h ij h 1 iceberg entry cost (EXPORTER) (IMPORTER) (BOTH) Primitives: T h i, w i, d ij, f ij, Endogenous objects: X h ij, Y i, L j, y j, Φ h j Key parameters: θ h, σ h, η h Discussion by Baley (NYU) Non-Homothetic Gravity by Xie August 14, / 7

3 Highlights of the paper What are the main results? Bilateral trade between exporter i and importer j in sector h: log Xij h log Y i + θ h log(ti h w i ) comp. adv. + θ h a h log L j + ηh b j α log y j mkt size θ h log dij h iceberg pc. income (1 + θh σ h 1 entry cost + σh η h σ h 1 Φh j closeness ) log f h ij (EXPORTER) (IMPORTER) (BOTH) i) Income of exporter Y i and importer Y j = y j Lj affect trade differently. ii) Market size L j and income y j of importer affect trade differently. iii) Effects magnified or dampened by sectoral elasticities. Discussion by Baley (NYU) Non-Homothetic Gravity by Xie August 14, / 7

4 Highlights of the paper What is the role of each ingredient? 1 Non-homothetic preferences: Why? In data, income elasticities are not unity and vary by sector. How? Different elasticities within and between sectors {σ h, η h } N h=1. 2 Monopolistic competition: Why? To identify within sector elasticity {σ h } N h=1. How? σ h affects trade patterns via markups 3 Producer heterogeneity at sector level: σ h σ h 1. Why? Feature of the data with implications for welfare (via reallocation). 4 Comparative advantage: Why? Framework to measure relative strength of demand vs. productivity. Discussion by Baley (NYU) Non-Homothetic Gravity by Xie August 14, / 7

5 Comments Comments: Theory Isolate the role of each ingredient to generate results. Turn on and off ingredients. - Explain the interactions. - Compare with literature. - Highlight the contributions of the paper. Why are non-homothetic preferences the way to go? - Orthogonal evidence that can support their use? - Why preferences and not technology? Discussion by Baley (NYU) Non-Homothetic Gravity by Xie August 14, / 7

6 Comments Empirical Comments: Empirical Two empirical components: - Estimation of sectoral elasticities. - Decomposition of productivity and demand effects for US and China. Absence of GE effects: - Wages should reflect productivity gains: not in this model. - Country w i pinned down by homogenous freely traded good. - Trade is balanced through the free traded homogenous good. How do these assumptions affect inference and interpretation of results? Discussion by Baley (NYU) Non-Homothetic Gravity by Xie August 14, / 7

7 Comments Empirical Further comments Interesting to explore evolution of cross-sectional moments of elasticities. For example: Var t (θ h t ), Var t (σ h t ), Var t (η h t ) Have elasticities got more concentrated or dispersed? What would this imply for bilateral trade? Discussion by Baley (NYU) Non-Homothetic Gravity by Xie August 14, / 7