1 Derivation of Gravity equations 4. 2 List of countries included in the sample 5

Transcription

1 Appendix Conens 1 Derivaion of Graviy equaions 4 2 Lis of counries included in he sample 5 3 Procedure o consruc in-sample shares for srucural esimaion 5 4 More deails on srucural esimaion 6 5 Algorihm for recovering fied values from srucural esimaes 7 6 Algorihm for finding soluion o planner s problem 9 7 Discouned Pareo weighs and compensaing variaion 9 8 Addiional ables 11 9 Addiional figures 33 1

2 Lis of Tables 1 Reduced form graviy equaions, Full sample: Esimaion resuls Reduced form graviy equaions, Full sample: Graviy coefficiens, unresriced model Reduced form graviy equaions, Full sample: Graviy coefficiens, opimal risk sharing model Reduced form graviy equaions, full sample: Graviy coefficiens, financial auarky model Reduced form graviy equaions, OECD sample: Esimaion resuls Reduced form graviy equaions, OECD sample: Graviy coefficiens, unresriced model Reduced form graviy equaions, OECD sample: Graviy coefficiens, opimal risk sharing model Reduced form graviy equaions, OECD sample: Graviy coefficiens, auarky model Robusness ess on baseline es I Robusness ess on baseline es II Robusness ess on baseline es III Robusness ess on baseline es IV Correlaion of log change in relaive prices and log change in relaive consumpion Coefficien in regression of log change in relaive prices on log change in relaive consumpion Coefficiens on graviy variables from srucural esimaion Summary saisics on fied values of rade coss, srucural model Summary saisics on compensaing variaion, populaion-weighed Compensaing variaion under alernaive values for {η, ρ}, I Compensaing variaion under alernaive values for {η, ρ}, II Compensaing variaion under alernaive values for {η, ρ}, III Compensaing variaion under alernaive values for {η, ρ}, IV Compensaing variaion under alernaive values for {η, ρ}, V

3 23 Summary saisics on compensaing variaion, alernaive Pareo weighs Summary saisics on compensaing variaion, wih discouning Summary saisics on compensaing variaion: alernaive dependen variable 32 Lis of Figures 1 CDF of F-es saisics for random samples of 22 counries Coefficien of variaion of log change in simple relaive Pareo weigh esimaes 33 3 Correlaion beween prediced and acual bilaeral impors, srucural esimaion Cross-secional dispersion of srucural Pareo weigh esimaes Disribuion of deviaions from world mean consumpion growh rae Sandard deviaion of annual log changes in prices, fied agains measured Sandard deviaion of annual log changes in consumpion, fied agains measured

4 1 Derivaion of Graviy equaions The firs order condiion for Z i is : P i X i 1 η Z ik 1 η = τ ik Q k (1) This can be rearranged o obain demand: τ ik Q k Z ik = ( ) τ ik Q k 1 η P i P i X i (2) Subsiuing demand ino he resource consrain for he counry-k good, one obains: Q k Y k = N j=1 ( 1 τ jk Q k Z jk = Q k ) η 1 N j=1 ( ) η 1 P j P j τ jk X j (3) Rearranging his expression, i can be used o subsiue in for Q k(1 η) in (2), yielding: where IM ik EXP i OUT k = ( Π k ) 1 η = N ( τ ik Q k Z ik P (P i X) ( i ) = Π k i Q k Y k τ ik j=1 which is exacly wha is repored in he ex. Now assume balanced rade, so P i X i = Q i Y i Remember ha ( P k ) 1 η = N j=1 ) η 1 (4) ( ) η 1 P j P j τ jk X j (5) ( 1 τ kj and symmeric rade coss, so τ ik = τ ki. ) η 1 Q j(1 η) (6) Using (3) o subsiue in for Q j(1 η), and making use of P j X j = Q j Y j we obain ( ) N ( ) η 1 P k 1 η Π j = P j τ kj X j (7) j=1 Noice ha Π k = P k is a soluion o (5) and (7) as long as rade coss are symmeric, so we 4

5 can wrie: IM ik EXP i OUT k ( P i = ) P k η 1 τ ik 2 Lis of counries included in he sample Full sample: Algeria, Ausralia, Ausria, Barbados, Belgium, Benin, Bolivia, Brazil, Burkina Faso, Burundi, Cameroon, Canada, Cenral African Republic, Chile, China, Colombia, Congo, Dem. Rep., Congo, Rep., Cosa Rica, Coe d Ivoire, Denmark, Dominican Republic, Ecuador, Egyp, Arab Rep., El Salvador, Fiji, Finland, France, Gabon, Germany, Ghana, Greece, Guaemala, Guinea-Bissau, Guyana, Haii, Honduras, Hong Kong, China, Hungary, Iceland, India, Indonesia, Ireland, Israel, Ialy, Japan, Kenya, Korea, Rep., Madagascar, Malaysia, Mali, Mala, Mauriania, Mexico, Morocco, Neherlands, New Zealand, Nicaragua, Niger, Norway, Pakisan, Papua New Guinea, Paraguay, Peru, Philippines, Porugal, Rwanda, Saudi Arabia, Senegal, Sierra Leone, Souh Africa, Spain, Sri Lanka, Sudan, Sweden, Swizerland, Syrian Arab Republic, Taiwan, Thailand, Togo, Trinidad and Tobago, Tunisia, Turkey, Unied Kingdom, Unied Saes, Uruguay, Venezuela, RB, Zambia. OECD only: Ausralia, Ausria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Ialy, Japan, Neherlands, New Zealand, Norway, Porugal, Spain, Sweden, Swizerland, Unied Kingdom, Unied Saes. 3 Procedure o consruc in-sample shares for srucural esimaion Le variables wihou a ilde denoe he raw daa, and variables wih a ilde denoe he consruced variables for use in he srucural esimaion. Le N be he full number of counries in he world, and le Ñ be he number of counries in he sample. Then, reorder counries such ha 1o Ñ are in he sample. I hen consruc he following. If i k, hen: I M ik = Ñ IM ik j=1,j i IM ij IM i Ñ h=1 1 Ñ l=1 I M ik 5

6 while if i = k, hen: I M ii = [ ] OUT i EX i 1 Ñ h=1 Ñ l=1 I M ik where IM i is oal impors ino counry i a dae, measured using naional accouns daa, and EX i is oal expors from counry i a dae, also measured using naional accouns daa. Then: OUT i = EXP i = OUT i Ñ j=1 OUT j EXP i Ñ j=1 OUT j In his way, all variables are expressed as shares of in-sample oupu or in-sample absorpion. Noe ha he sample as a whole runs only a small rade balance wih he res of he world (he maximum surplus is 0.6% of in-sample GDP while he maximum defici is 0.4% of insample GDP), so in-sample oupu and in-sample absorpion are very close. The variables wih ilde are hen used in he srucural esimaion. 4 More deails on srucural esimaion Mechanically, I ake logs of IM ik EXP i = ( ) τ ik 1 η ( ) Q k 1 η N j=1 ( τ ij ) 1 η ( ) Q j 1 η (8) add an error erm, reformulae he variables and esimae: subjec o he resricion ha: ( ) ( IM ik N ln = d ik γ EXP i + α k ln exp ( ) ) d ij γ + α j + ε ik (9) j=1 OUT i = N j=1 exp (d ji γ + α) i N k=1 exp ( )EXP j d jk γ + α k (10) 6

7 by esimaing penalized non-linear leas squares. For each period, I choose he vecors γ and α o minimize: N i=1 N j=1 ω ij ( ε ij ) 2 + χ N k=1 ζ k ( υ k ) 2 (11) where OUT i = N j=1 exp (d ji γ + α) i N k=1 exp ( )EXP j d jk γ + α k + υ i and ζ k = OUT k. I se χ very large - sufficienly large ha replacing χ by 10χ resuls in only very small changes in he parameer vecor. Compuaionally, his is much more sraighforward han direcly imposing (10) wih equaliy. This procedure is repeaed for each cross-secion independenly. Noice ha nohing ies down he absolue level of prices, so I se Q N = 1 for all o esimae he N 1-vecor of relaive prices. 5 Algorihm for recovering fied values from srucural esimaes Given he fied values for γ and α, and he chosen values of η and ρ, he variables necessary for he counerfacual are recovered as follows. Trade coss are given by ˆτ ij = [ exp ( d ijˆγ )] 1 1 η while esimaes of (relaive) oupu prices are given by: ˆQ i = [ ( )] 1 1 η exp ˆψi Oupu prices and rade coss ogeher yield he esimae of (relaive) consumpion prices using: ˆP i = [ N j=1 ] 1 ( ) 1 η 1 η ˆτ ij ˆQ j Esimaed consumpion prices and daa on he value of expendiure on consumpion are 7

8 used o recover an esimae of (relaive) real consumpion: Ĉ i = µi EXP i ˆP i where µ i is he hisorical share of expendiure devoed o privae consumpion. An esimae of he amoun of (relaive) real oupu devoed o consumpion is hen consruced using real demand for each inermediae and he resource consrain for each inermediae: Ŷ ic = N j=1 τ ji ( ˆτ ji ˆP j ˆQ i ) η Ĉ j I will also be convenien o have an esimae of oal real oupu, which can be calculaed as: Ŷ i = N j=1 τ ji ( ˆτ ji ˆP j ˆQ i ) η EXP j ˆP j = OUT i ˆQ i (he las equaliy is because (10) is imposed on he esimaes wih equaliy). Finally, o obain an esimae of he vecor λ, I need o make an assumpion abou he form of u ( ) and u c ( ). I assume ha uiliy is CRRA wih risk aversion ρ, so: ˆλ i = ˆP i (Ĉi L i ) ρ where L i is populaion. Noe ha his can be performed for each period independenly. The ˆλ i can hen be re-expressed such ha N i=1 ˆλ i = 1. This will impose a differen normalizaion on prices, hough relaive prices and he implied relaive real allocaion will remain unchanged. Calculaing counerfacual ne expors and rade does no require any comparison of he absolue levels of real oupu and real consumpion across periods. However calculaing welfare does require his. Since he model is esimaed on each cross-secion independenly, he esimaes do no ie down he relaive size of he real pie across periods, only he division of ha pie wihin periods. Comparing he pie across periods requires daa on real oupu or real consumpion for a numeraire counry. I pick he US as he numeraire, and use real GDP as he series I benchmark o. This is implemened as follows. Having { consruced ˆQ, ˆP } { }, Ĉ, Ŷ C, Ŷ as described above, I hen consruc ˆQ, ˆP, Ĉ, Ŷ C, Ŷ = 8

9 { α ˆQ, α ˆP, Ĉ α, Ŷ C α, Ŷ α } wih α = ŶUS,/Y US,. 6 Algorihm for finding soluion o planner s problem { } Given L, ˆτ, Ŷ C, λ ; η, ρ, for any vecor of goods prices Q, we can calculae he vecor of ( ) excess demands for individual goods, h Q; L, ˆτ, Ŷ C, λ ; η, ρ. Saring wih some Q 0, le Q 1 = Q 0 ( ( ( ) )) 1 + h Q 0 ; L, ˆτ, Ŷ C, λ ; η, ρ /Ŷ This is ieraed unil convergence, which is achieved rapidly. Given his vecor of prices, i is possible o calculae he equilibrium values of all relevan variables. 7 Discouned Pareo weighs and compensaing variaion As an alernaive o he baseline, on can calculae he opimal risk sharing Pareo weighs as he discouned weighed average of he esimaed relaive weighs wihin he risk-sharing group. For he exercise ha imposes opimal risk sharing in he OECD alone, he weigh of he OECD as a whole relaive o ha of he res of he world is held fixed a is esimaed level jus as before. The weighs for OECD counries are calculaed as (remember N i=1 ˆλ i = 1): λ i,oecd (1) = 2000 =1970 β 1970ˆλi j OECD 2000 =1970 β 1970ˆλ j [ j OECD The ime-series of Pareo weighs for non-oecd counries are also fixed a heir esimaed levels, i.e. λ i,noecd (1) = ˆλ i,noecd. For opimal risk sharing for he full sample of counries, each counry s counerfacual weigh is calculaed as: λ i (2) = The corresponding measure of welfare is: 2000 =1970 β 1970ˆλi N j= =1970 β 1970ˆλ j ˆλ j ] (12) (13) 9

10 W i 2 = T =1 β 1 (Ci /N i ) 1 ρ 1 ρ and he corresponding measure of compensaing variaion is δ 2 such ha: (14) T =1 β 1 ( ) δ 2 Ĉ i 1 ρ /L i 1 ρ = T =1 β 1 ( ) 1 ρ Ci /L i 1 ρ This is implemened wih β =

11 8 Addiional ables Table 1: Reduced form graviy equaions, Full sample: Esimaion resuls Noes: Dependen variable is ln (1) (2) (3) (4) ln(vc/pop) 0.46 (0.03)*** ln(emp/pop) 3.01 (0.18)*** ldis x yr yes yes yes no nconig x yr yes yes yes no ncomlang x yr yes yes yes no ncolony x yr yes yes yes no ncomcol x yr yes yes yes no nlegal x yr yes yes yes no imp-yr f.e. yes no symmeric no exp-yr f.e. yes yes no no imp f.e. no yes no no ime f.e. no no no yes # param N R-sq IM ij /EXP i OUT j. Esimaion is by OLS. Robus sandard errors are repored in parenheses. * indicaes significanly differen from zero a he 10% level, ** indicaes significanly differen from zero a he 5% level, *** indicaes significanly differen from zero a he 1% level. 11

12 Table 2: Reduced form graviy equaions, Full sample: Graviy coefficiens, unresriced model ldis nconig ncomlang ncolony ncomcol nlegal year coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e (0.07)*** 0.17 (0.46) (0.16)*** (0.31)** (0.25)*** 0.28 (0.13)** (0.07)*** (0.45) (0.16)*** (0.30)** (0.25)*** 0.29 (0.13)** (0.07)*** (0.45) (0.17)*** (0.30)** (0.26)*** 0.33 (0.13)** (0.07)*** 0.14 (0.47) (0.17)*** (0.30)* (0.26)*** 0.30 (0.13)** (0.07)*** (0.49) (0.17)*** (0.31) (0.26)*** 0.22 (0.13)* (0.07)*** (0.47) (0.17)*** (0.31) (0.26)*** 0.29 (0.13)** (0.07)*** 0.36 (0.50) (0.17)*** (0.32)** (0.26)*** 0.29 (0.13)** (0.08)*** 1.83 (0.48)*** (0.18)*** (0.32)*** (0.26)*** 0.31 (0.13)** (0.08)*** 1.40 (0.46)*** 0.09 (0.17) (0.36)*** (0.26)*** 0.12 (0.14) (0.08)*** 0.56 (0.49) (0.17)*** (0.32)*** (0.27)*** 0.34 (0.13)** (0.08)*** 1.06 (0.50)** (0.18)*** (0.34)*** (0.27)*** 0.17 (0.14) (0.08)*** 0.53 (0.51) (0.18)*** (0.34)*** (0.27)*** 0.30 (0.14)** (0.08)*** 1.41 (0.44)*** (0.18)*** (0.35)*** (0.25)** 0.00 (0.14) (0.08)*** 0.06 (0.45) (0.17) (0.37)*** (0.25)*** 0.01 (0.14) (0.09)*** 0.95 (0.46)** (0.20)*** (0.37)*** (0.28)* (0.16) (0.08)*** 0.64 (0.45) (0.20)*** (0.36)*** (0.28)* (0.16) (0.08)*** 1.08 (0.44)** (0.19)*** (0.35)*** (0.28) (0.15) (0.08)*** 1.40 (0.44)*** (0.19)*** (0.35)*** (0.28) (0.15) (0.08)*** 0.96 (0.43)** (0.19)*** (0.35)*** (0.27)* (0.15) (0.08)*** 0.93 (0.42)** (0.19)*** (0.35)*** (0.28) (0.15) (0.08)*** 1.16 (0.42)*** (0.19)*** (0.35)*** 0.02 (0.27) 0.02 (0.15) (0.08)*** 1.12 (0.42)*** (0.19)*** (0.35)*** 0.20 (0.27) 0.13 (0.15) (0.08)*** 1.38 (0.40)*** (0.19)*** (0.35)*** 0.45 (0.27)* (0.15) (0.08)*** 1.53 (0.40)*** (0.19)*** (0.35)*** 0.18 (0.27) 0.16 (0.15) (0.08)*** 1.35 (0.39)*** (0.19)*** (0.35)*** 0.24 (0.27) 0.07 (0.14) (0.08)*** 1.35 (0.39)*** (0.19)*** (0.35)*** 0.47 (0.27)* 0.19 (0.14) (0.08)*** 1.38 (0.39)*** (0.19)*** (0.35)*** 0.25 (0.27) (0.14) (0.08)*** 1.26 (0.40)*** (0.19)*** (0.35)*** 0.33 (0.27) 0.16 (0.14) (0.08)*** 1.36 (0.40)*** (0.18)*** (0.35)*** 0.22 (0.27) 0.22 (0.14) (0.08)*** 1.39 (0.39)*** (0.19)*** (0.35)*** 0.23 (0.27) 0.15 (0.14) (0.08)*** 0.91 (0.40)** (0.20)*** (0.36)*** 0.39 (0.27) 0.09 (0.15) Noes: Dependen variable is ln 1 + IM ij /EXP iout j. Esimaion is by OLS. Robus sandard errors are repored in parenheses. * indicaes significanly differen from zero a he 10% level, ** indicaes significanly differen from zero a he 5% level, *** indicaes significanly differen from zero a he 1% level. Ohe regressors and R-squared are repored in column (1) of Table 1. 12

13 Table 3: Reduced form graviy equaions, Full sample: Graviy coefficiens, opimal risk sharing model ldis nconig ncomlang ncolony ncomcol nlegal year coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e (0.07)*** 0.35 (0.48) (0.16)*** (0.31) (0.24)*** 0.23 (0.12)* (0.07)*** (0.46) (0.16)*** (0.29) (0.24)*** 0.27 (0.12)** (0.07)*** (0.47) (0.16)*** (0.30) (0.25)*** 0.17 (0.12) (0.07)*** 0.15 (0.49) (0.16)*** (0.30) (0.25)*** 0.18 (0.12) (0.07)*** (0.51) (0.16)*** 0.10 (0.31) (0.25)*** 0.09 (0.12) (0.07)*** (0.49) (0.16)*** 0.10 (0.31) (0.26)*** 0.06 (0.12) (0.07)*** 0.54 (0.51) (0.16)*** (0.31) (0.25)*** 0.14 (0.12) (0.07)*** 2.11 (0.47)*** (0.17)*** (0.31)*** (0.25)*** 0.22 (0.12)* (0.08)*** 2.47 (0.47)*** (0.18) (0.33)*** (0.27)*** 0.38 (0.13)*** (0.07)*** 0.68 (0.49) (0.17)*** (0.31)** (0.26)*** 0.27 (0.12)** (0.08)*** 1.20 (0.51)** (0.17)*** (0.32)*** (0.27)*** 0.10 (0.12) (0.08)*** 0.82 (0.53) (0.18)*** (0.33)*** (0.27)*** 0.11 (0.12) (0.07)*** 1.62 (0.45)*** (0.18)*** (0.33)*** (0.27) 0.03 (0.12) (0.08)*** 1.14 (0.46)** (0.19) (0.34)*** (0.27)*** 0.11 (0.13) (0.08)*** 1.18 (0.45)*** (0.19)*** (0.35)*** (0.27) 0.18 (0.14) (0.08)*** 0.98 (0.43)** (0.19)*** (0.33)*** (0.26) 0.01 (0.14) (0.08)*** 1.21 (0.44)*** (0.18)*** (0.32)*** 0.10 (0.26) (0.14) (0.08)*** 1.32 (0.44)*** (0.18)*** (0.32)*** 0.06 (0.27) (0.14) (0.08)*** 0.85 (0.43)** (0.18)*** (0.33)*** (0.26) (0.14) (0.08)*** 0.79 (0.43)* (0.18)*** (0.32)*** 0.25 (0.27) (0.14) (0.08)*** 0.95 (0.42)** (0.18)*** (0.33)*** 0.31 (0.27) (0.13) (0.08)*** 0.80 (0.42)* (0.18)*** (0.33)*** 0.30 (0.26) 0.25 (0.13)* (0.07)*** 1.10 (0.40)*** (0.18)*** (0.33)*** 0.40 (0.26) 0.07 (0.13) (0.07)*** 1.17 (0.41)*** (0.18)*** (0.33)*** 0.24 (0.26) 0.24 (0.13)* (0.07)*** 0.96 (0.40)** (0.18)*** (0.33)*** 0.30 (0.26) 0.12 (0.13) (0.07)*** 1.00 (0.40)** (0.18)*** (0.33)*** 0.59 (0.26)** 0.15 (0.13) (0.07)*** 0.99 (0.40)** (0.18)*** (0.33)*** 0.33 (0.26) (0.13) (0.08)*** 0.84 (0.41)** (0.18)*** (0.34)*** 0.34 (0.26) 0.17 (0.13) (0.07)*** 0.96 (0.40)** (0.17)*** (0.33)*** 0.28 (0.26) 0.29 (0.13)** (0.07)*** 0.92 (0.39)** (0.18)*** (0.33)*** 0.30 (0.26) 0.18 (0.13) (0.08)*** 0.47 (0.41)** (0.19)*** (0.33)*** 0.52 (0.27)* 0.17 (0.14) Noes: Dependen variable is ln 1 + IM ij /EXP i OUT j. Esimaion is by OLS. Robus sandard errors are repored in parenheses. * indicaes significanly differen from zero a he 10% level, ** indicaes significanly differen from zero a he 5% level, *** indicaes significanly differen from zero a he 1% level. Ohe regressors and R-squared are repored in column (1) of Table 1. 13

14 Table 4: Reduced form graviy equaions, full sample: Graviy coefficiens, financial auarky model ldis nconig ncomlang ncolony ncomcol nlegal year coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e (0.07)*** 0.17 (0.46) (0.17)*** (0.31)** (0.26)*** 0.28 (0.13)** (0.07)*** (0.45) (0.17)*** (0.29)** (0.26)*** 0.29 (0.13)** (0.07)*** (0.45) (0.17)*** (0.29)** (0.27)*** 0.33 (0.14)** (0.07)*** 0.14 (0.47) (0.17)*** (0.30)* (0.27)*** 0.30 (0.14)** (0.07)*** (0.49) (0.17)*** (0.30) (0.27)*** 0.22 (0.14) (0.07)*** (0.47) (0.17)*** (0.31) (0.27)*** 0.29 (0.14)** (0.08)*** 0.36 (0.50) (0.18)*** (0.32)** (0.27)*** 0.29 (0.14)** (0.08)*** 1.83 (0.48)*** (0.18)*** (0.32)*** (0.27)*** 0.31 (0.14)** (0.08)*** 1.40 (0.46)*** 0.09 (0.17) (0.36)*** (0.26)*** 0.12 (0.14) (0.08)*** 0.56 (0.49) (0.18)*** (0.32)*** (0.27)*** 0.34 (0.14)** (0.08)*** 1.06 (0.49)** (0.18)*** (0.33)*** (0.28)*** 0.17 (0.14) (0.08)*** 0.53 (0.51) (0.18)*** (0.33)*** (0.28)*** 0.30 (0.14)** (0.08)*** 1.41 (0.44)*** (0.18)*** (0.35)*** (0.25)** 0.00 (0.14) (0.09)*** 0.06 (0.47) (0.17) (0.37)*** (0.25)*** 0.01 (0.14) (0.09)*** 0.95 (0.46)** (0.20)*** (0.37)*** (0.28)* (0.16) (0.08)*** 0.64 (0.45) (0.20)*** (0.36)*** (0.28)* (0.16) (0.08)*** 1.08 (0.44)** (0.20)*** (0.35)*** (0.28) (0.16) (0.08)*** 1.40 (0.44)*** (0.20)*** (0.34)*** (0.28) (0.16) (0.08)*** 0.96 (0.42)** (0.19)*** (0.35)*** (0.28) (0.15) (0.08)*** 0.93 (0.42)** (0.19)*** (0.35)*** (0.28) (0.15) (0.08)*** 1.16 (0.41)*** (0.19)*** (0.35)*** 0.02 (0.28) 0.02 (0.15) (0.08)*** 1.12 (0.42)*** (0.19)*** (0.34)*** 0.20 (0.28) 0.13 (0.15) (0.08)*** 1.38 (0.40)*** (0.19)*** (0.34)*** 0.45 (0.27)* (0.15) (0.08)*** 1.53 (0.40)*** (0.19)*** (0.35)*** 0.18 (0.27) 0.16 (0.15) (0.08)*** 1.35 (0.39)*** (0.19)*** (0.34)*** 0.24 (0.27) 0.07 (0.15) (0.08)*** 1.35 (0.39)*** (0.19)*** (0.34)*** 0.47 (0.27)* 0.19 (0.14) (0.08)*** 1.38 (0.39)*** (0.19)*** (0.35)*** 0.25 (0.27) (0.15) (0.08)*** 1.26 (0.40)*** (0.19)*** (0.35)*** 0.33 (0.27) 0.16 (0.14) (0.08)*** 1.36 (0.40)*** (0.19)*** (0.34)*** 0.22 (0.27) 0.22 (0.14) (0.08)*** 1.39 (0.39)*** (0.19)*** (0.35)*** 0.23 (0.27) 0.15 (0.15) (0.08)*** 0.91 (0.40)** (0.20)*** (0.35)*** 0.39 (0.28) 0.09 (0.16) Noes: Dependen variable is ln 1 + IM ij /EXP iout j. Esimaion is by OLS. Robus sandard errors are repored in parenheses. * indicaes significanly differen from zero a he 10% level, ** indicaes significanly differen from zero a he 5% level, *** indicaes significanly differen from zero a he 1% level. Ohe regressors and R-squared are repored in column (1) of Table 1. 14

15 Table 5: Reduced form graviy equaions, OECD sample: Esimaion resuls Noes: Dependen variable is ln (1) (2) (3) (4) ln(vc/pop) (0.06)*** ln(emp/pop) (0.22) ldis x yr yes yes yes no nconig x yr yes yes yes no ncomlang x yr yes yes yes no ncolony x yr yes yes yes no ncomcol x yr yes yes yes no nlegal x yr yes yes yes no imp-yr f.e. yes no symmeric no exp-yr f.e. yes yes no no imp f.e. no yes no no ime f.e. no no no yes # param N R-sq IM ij /EXP i OUT j. Esimaion is by OLS. Robus sandard errors are repored in parenheses. * indicaes significanly differen from zero a he 10% level, ** indicaes significanly differen from zero a he 5% level, *** indicaes significanly differen from zero a he 1% level. 15

16 Table 6: Reduced form graviy equaions, OECD sample: Graviy coefficiens, unresriced model ldis nconig ncomlang ncolony ncomcol nlegal year coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e (0.08)*** (0.16) (0.15)* (0.22)*** 0.70 (0.66) (0.09)*** (0.08)*** (0.16) (0.14) (0.20)*** 0.70 (0.64) (0.09)*** (0.08)*** (0.16) (0.14) (0.19)*** 0.73 (0.64) (0.09)*** (0.07)*** (0.13) (0.13) (0.17)*** 0.86 (0.57) (0.08)*** (0.06)*** (0.13) (0.12) (0.16)*** 1.01 (0.55)* (0.08)*** (0.07)*** (0.13) (0.13) (0.17)*** 0.97 (0.57)* (0.08)*** (0.07)*** (0.13) (0.13) (0.16)*** 1.20 (0.57)** (0.08)*** (0.07)*** (0.16) (0.13) (0.17)*** 1.15 (0.59)* (0.09)*** (0.07)*** (0.13) (0.13) (0.16)*** 1.11 (0.55)** (0.09)*** (0.07)*** (0.15) (0.13) (0.16)*** 1.30 (0.56)** (0.09)*** (0.06)*** (0.12) (0.12) (0.14)*** 1.33 (0.52)** (0.08)*** (0.06)*** (0.12) (0.11) (0.14)*** 1.32 (0.52)** (0.08)*** (0.06)*** (0.11) (0.12) (0.14)*** 1.35 (0.52)*** (0.08)*** (0.06)*** (0.11) (0.11) (0.13)*** 1.32 (0.51)** (0.07)*** (0.09)*** 0.11 (0.20) (0.16) (0.22)** 1.40 (0.77)* (0.12)*** (0.08)*** 0.12 (0.19) (0.14) (0.20)** 1.59 (0.64)** (0.11)*** (0.06)*** (0.11) (0.11) (0.16)*** 1.34 (0.52)** (0.08)*** (0.07)*** 0.05 (0.15) (0.13) (0.17)*** 1.39 (0.58)** (0.08)*** (0.08)*** 0.12 (0.18) (0.14) (0.20)** 1.38 (0.63)** (0.10)*** (0.08)*** 0.16 (0.19) (0.18) (0.23)** 1.57 (0.64)** (0.13)*** (0.07)*** 0.02 (0.15) (0.12) (0.17)*** 1.43 (0.57)** (0.08)*** (0.08)*** 0.15 (0.19) (0.14) (0.20)** 1.65 (0.63)*** (0.09)*** (0.08)*** 0.16 (0.19) (0.14) (0.21)** 1.64 (0.62)*** (0.10)*** (0.08)*** 0.19 (0.19) (0.14) (0.23)* 1.69 (0.64)*** (0.10)*** (0.07)*** 0.07 (0.15) (0.13) (0.20)* 1.61 (0.57)*** (0.09)*** (0.07)*** 0.06 (0.15) (0.13) (0.20)* 1.60 (0.56)*** (0.09)*** (0.06)*** (0.11) 0.04 (0.11) (0.16)** 1.55 (0.49)*** (0.07)*** (0.06)*** (0.12) 0.04 (0.11) (0.16)** 1.48 (0.51)*** (0.07)*** (0.06)*** (0.11) (0.11) (0.16) 1.32 (0.49)*** (0.07)*** (0.06)*** (0.12) (0.11) (0.16)* 1.41 (0.51)*** (0.08)*** (0.08)*** 0.00 (0.13) (0.14) (0.25)* 1.29 (0.63)** (0.10)*** Noes: Dependen variable is ln 1 + IM ij /EXP iout j. Esimaion is by OLS. Robus sandard errors are repored in parenheses. * indicaes significanly differen from zero a he 10% level, ** indicaes significanly differen from zero a he 5% level, *** indicaes significanly differen from zero a he 1% level. Ohe regressors and R-squared are repored in column (1) of Table 5. 16

17 Table 7: Reduced form graviy equaions, OECD sample: Graviy coefficiens, opimal risk sharing model ldis nconig ncomlang ncolony ncomcol nlegal year coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e (0.07)*** 0.04 (0.16) (0.12)* (0.22)*** 1.27 (0.60)** (0.09)*** (0.07)*** (0.17) (0.11) (0.20)*** 1.23 (0.60)** (0.09)*** (0.07)*** (0.16) (0.11) (0.19)*** 1.19 (0.59)** (0.09)*** (0.05)*** (0.13) (0.11) (0.16)*** 1.16 (0.43)*** (0.08)*** (0.04)*** (0.12) (0.11) (0.17)*** 0.96 (0.41)** (0.08)*** (0.04)*** (0.12) (0.11) (0.17)*** 0.86 (0.42)** (0.08)*** (0.05)*** (0.13) (0.11) (0.16)*** 1.38 (0.43)*** (0.08)*** (0.07)*** (0.17) (0.11) (0.17)*** 1.58 (0.59)*** (0.08)*** (0.04)*** (0.12) (0.12)** (0.16)*** 0.99 (0.40)** (0.09)*** (0.08)*** (0.17) (0.10) (0.16)*** 1.59 (0.59)*** (0.08)*** (0.04)*** (0.11) (0.10) (0.14)*** 1.36 (0.38)*** (0.08)*** (0.04)*** (0.11) (0.10) (0.15)*** 1.28 (0.37)*** (0.08)*** (0.04)*** (0.11) (0.10) (0.15)*** 1.20 (0.37)*** (0.07)*** (0.04)*** (0.10) (0.10) (0.14)*** 1.00 (0.36)*** (0.07)*** (0.08)*** 0.01 (0.18) (0.15) (0.18)*** 1.56 (0.65)** (0.11)*** (0.08)*** 0.07 (0.18) (0.14)* (0.17)*** 1.65 (0.61)*** (0.09)*** (0.04)*** (0.10) (0.10) (0.14)*** 1.22 (0.37)*** (0.07)*** (0.08)*** 0.06 (0.16) (0.10) (0.16)*** 1.71 (0.61)*** (0.07)*** (0.08)*** 0.10 (0.18) (0.13) (0.16)*** 1.72 (0.61)*** (0.08)*** (0.08)*** 0.08 (0.18) (0.13) (0.16)*** 1.64 (0.62)*** (0.10)*** (0.08)*** (0.16) (0.10) (0.17)*** 1.48 (0.62)** (0.07)*** (0.08)*** 0.10 (0.18) (0.13) (0.18)** 1.73 (0.62)*** (0.07)*** (0.08)*** 0.11 (0.18) (0.13) (0.18)** 1.73 (0.62)*** (0.08)*** (0.04)*** 0.10 (0.15) (0.16) (0.16)** 1.28 (0.39)*** (0.08)*** (0.04)*** 0.00 (0.13) (0.14) (0.16)** 1.17 (0.37)*** (0.07)*** (0.04)*** (0.13) (0.13) (0.17)* 1.05 (0.38)*** (0.07)*** (0.03)*** (0.10) (0.10) (0.15)* 0.94 (0.35)*** (0.06)*** (0.03)*** (0.10) (0.10) (0.15)* 1.01 (0.35)*** (0.07)*** (0.03)*** (0.10) (0.10) (0.16) 1.01 (0.35)*** (0.07)*** (0.03)*** (0.11) (0.10) (0.16) 1.08 (0.36)*** (0.07)*** (0.04)*** 0.01 (0.12) (0.13) (0.21) 1.34 (0.39)*** (0.08)*** Noes: Dependen variable is ln 1 + IM ij /EXP i OUT j. Esimaion is by OLS. Robus sandard errors are repored in parenheses. * indicaes significanly differen from zero a he 10% level, ** indicaes significanly differen from zero a he 5% level, *** indicaes significanly differen from zero a he 1% level. Ohe regressors and R-squared are repored in column (1) of Table 5. 17

18 Table 8: Reduced form graviy equaions, OECD sample: Graviy coefficiens, auarky model ldis nconig ncomlang ncolony ncomcol nlegal year coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e. coeff s.e (0.07)*** (0.16) (0.15)* (0.22)*** 0.70 (0.61) (0.10)*** (0.07)*** (0.16) (0.14) (0.20)*** 0.70 (0.59) (0.10)*** (0.07)*** (0.16) (0.14) (0.19)*** 0.73 (0.59) (0.10)*** (0.07)*** (0.14) (0.13) (0.17)*** 0.86 (0.55) (0.09)*** (0.06)*** (0.13) (0.13) (0.17)*** 1.01 (0.54)* (0.09)*** (0.07)*** (0.13) (0.13) (0.18)*** 0.97 (0.55)* (0.09)*** (0.07)*** (0.14) (0.13) (0.17)*** 1.20 (0.55)** (0.09)*** (0.07)*** (0.16) (0.14) (0.18)*** 1.15 (0.56)** (0.10)*** (0.06)*** (0.13) (0.14) (0.17)*** 1.11 (0.53)** (0.10)*** (0.06)*** (0.15) (0.13) (0.17)*** 1.30 (0.53)** (0.09)*** (0.06)*** (0.12) (0.12) (0.16)*** 1.33 (0.50)*** (0.09)*** (0.06)*** (0.12) (0.12) (0.16)*** 1.32 (0.50)*** (0.09)*** (0.06)*** (0.12) (0.13) (0.16)*** 1.35 (0.51)*** (0.09)*** (0.06)*** (0.11) (0.12) (0.15)*** 1.32 (0.50)*** (0.08)*** (0.09)*** 0.11 (0.19) (0.16) (0.22)** 1.40 (0.72)* (0.12)*** (0.07)*** 0.12 (0.19) (0.15) (0.20)** 1.59 (0.60)*** (0.11)*** (0.06)*** (0.11) (0.12) (0.16)*** 1.34 (0.50)*** (0.08)*** (0.07)*** 0.05 (0.15) (0.13) (0.17)** 1.39 (0.54)** (0.09)*** (0.08)*** 0.12 (0.18) (0.15) (0.20)** 1.38 (0.61)** (0.10)*** (0.08)*** 0.16 (0.19) (0.18) (0.22)** 1.57 (0.62)** (0.13)*** (0.06)*** 0.02 (0.15) (0.13) (0.18)** 1.43 (0.54)*** (0.09)*** (0.08)*** 0.15 (0.18) (0.14) (0.21)** 1.65 (0.61)*** (0.10)*** (0.08)*** 0.16 (0.18) (0.15) (0.21)** 1.64 (0.61)*** (0.10)*** (0.07)*** 0.19 (0.19) (0.14) (0.21)** 1.69 (0.61)*** (0.10)*** (0.07)*** 0.07 (0.15) (0.13) (0.19)** 1.61 (0.55)*** (0.09)*** (0.06)*** 0.06 (0.15) (0.13) (0.19)* 1.60 (0.54)*** (0.09)*** (0.06)*** (0.11) 0.04 (0.12) (0.16)** 1.55 (0.48)*** (0.08)*** (0.06)*** (0.12) 0.04 (0.12) (0.16)** 1.48 (0.49)*** (0.08)*** (0.06)*** (0.11) (0.12) (0.17) 1.32 (0.48)*** (0.09)*** (0.06)*** (0.12) (0.12) (0.17)* 1.41 (0.50)*** (0.09)*** (0.08)*** 0.00 (0.12) (0.14) (0.22)* 1.29 (0.61)** (0.11)*** Noes: Dependen variable is ln 1 + IM ij /EXP i OUT j. Esimaion is by OLS. Robus sandard errors are repored in parenheses. * indicaes significanly differen from zero a he 10% level, ** indicaes significanly differen from zero a he 5% level, *** indicaes significanly differen from zero a he 1% level. Ohe regressors and R-squared are repored in column (1) of Table 5. 18

19 Table 9: Robusness ess on baseline es I Null Alernaive F-sa # resr d.f. p-val Drop employmen variable, All cos, share cos, noshare Drop employmen variable, OECD cos, share cos, noshare Alernaive graviy variables I, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Alernaive graviy variables I, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Alernaive graviy variables II, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Alernaive graviy variables II, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Alernaive graviy variables III, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Alernaive graviy variables III, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Noes: This able repors resuls from F-ess of null hypoheses agains he alernaive. Tess are based on esimaing resriced and unresriced log-linear graviy models of rade, as described in he ex. Baseline sample includes 88 counries as lised in he Appendix, annual daa All bilaeral pairs including rade wih self are included. Zeros in bilaeral rade are replaced by 1 o generae he dependen variable, which is bilaeral impors normalized by imporer s expendiure and exporer s gross oupu. Baseline graviy variables include log disance and six indicaor variables consruced o normalize rade coss o zero wihin counries. The firs wo panels repor resuls from he ess of he null of opimal risk sharing agains he alernaive where he employmen per capia variable is dropped from he resriced model. In Alernaive graviy variables I, log disance is he only graviy variable included. In Alernaive graviy variables II, in addiion o he baseline graviy variables, I allow ineracions beween he disance variable and he sandard indicaor variables. In Alernaive graviy variables III, I drop he sandard indicaor variables, bu allow main effecs and ineracions wih he disance variable for indicaor variables for rade beween an OECD counry and a non-oecd counry and for rade beween wo (differen) non-oecd counries. 19

20 Table 10: Robusness ess on baseline es II Null Alernaive F-sa # resr d.f. p-val Exclude rade wih self, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Exclude rade wih self, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Zeros in dependen variable adjused by min impors, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Zeros in dependen variable adjused by min impors, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Zeros in dependen variable adjused by min expors, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Zeros in dependen variable adjused by min expors, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Drop zeros, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Drop zeros, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare year aggregaion, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare year aggregaion, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Helpman, Meliz, Rubinsein, All cos, share cos, noshare Noes: This able repors resuls from F-ess of null hypoheses agains he alernaive. Tess are based on esimaing resriced and unresriced log-linear graviy models of rade, as described in he ex. Baseline sample includes 88 counries as lised in he Appendix, annual daa All bilaeral pairs including rade wih self are included. Unless oherwise noed, zeros in bilaeral rade are replaced by 1 o generae he dependen variable, which is bilaeral impors normalized by imporer s expendiure and exporer s gross oupu. Baseline graviy variables include log disance and six indicaor variables consruced o normalize rade coss o zero wihin counries. The firs wo panels repor resuls based on excluding impors from self from he baseline sample. The second wo panels repor resuls based on excluding all zero observaions on bilaeral impors from he baseline sample. The hird wo panels repor resuls based on aggregaing he daa in he baseline sample over 5-year periods. The final panel repors he resuls based on he second sage of he procedure proposed by Helpman, Meliz and Rubinsein [2008] o conrol for selecion. This is no implemened on he OECD sample because here are oo few zeros in he dependen variable for he firs sage o work. 20

21 Table 11: Robusness ess on baseline es III Null Alernaive F-sa # resr d.f. p-val Include daa up o 2005, All cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Include daa up o 2005, OECD cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Chinn-Io: rank greaer han 59 cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Chinn-Io: rank greaer han 60 cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Baseline, non-oecd only cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Baseline, OECD plus Turkey cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Baseline, OECD plus Turkey, Korea cos, share cos, noshare no cos cos, noshare cos, fin au cos, noshare Noes: This able repors resuls from F-ess of null hypoheses agains he alernaive. Tess are based on esimaing resriced and unresriced log-linear graviy models of rade, as described in he ex. Baseline sample includes 88 counries as lised in he Appendix, annual daa All bilaeral pairs including rade wih self are included. Zeros in bilaeral rade are replaced by 1 o generae he dependen variable, which is bilaeral impors normalized by imporer s expendiure and exporer s gross oupu. Baseline graviy variables include log disance and six indicaor variables consruced o normalize rade coss o zero wihin counries. The firs wo panels repor resuls based on exending he sample o 2005 using DOTS daa on bilaeral rade. The second wo panels repor resuls based on choosing an inegraed subsample of counries (consan over ime) based on median ranking according o he Chinn and Io [2008] measure of financial inegraion. The firs panel chooses a lower cuoff, i.e. a bigger sample, han he second. The nex panels repor resuls for samples ha include only non-oecd counries, he baseline OECD counries plus Turkey, and he baseline OECD counries plus Turkey and Korea respecively. 21

22 Table 12: Robusness ess on baseline es IV Null Alernaive F-sa # resr d.f. p-val Impose coeff on ln(vc/p) = -10, All cos, share cos, noshare Impose coeff on ln(vc/p) = -10, OECD cos, share cos, noshare Impose coeff on ln(vc/p) = -5, All cos, share cos, noshare Impose coeff on ln(vc/p) = -5, OECD cos, share cos, noshare Impose coeff on ln(vc/p) = -1, All cos, share cos, noshare Impose coeff on ln(vc/p) = -1, OECD cos, share cos, noshare Impose coeff on ln(vc/p) = -0.5, All cos, share cos, noshare Impose coeff on ln(vc/p) = -0.5, OECD cos, share cos, noshare Impose coeff on ln(vc/p) = 0.5, All cos, share cos, noshare Impose coeff on ln(vc/p) = 0.5, OECD cos, share cos, noshare Impose coeff on ln(vc/p) = 1, All cos, share cos, noshare Impose coeff on ln(vc/p) = 1, OECD cos, share cos, noshare Impose coeff on ln(vc/p) = 5, All cos, share cos, noshare Impose coeff on ln(vc/p) = 5, OECD cos, share cos, noshare Impose coeff on ln(vc/p) = 10, All cos, share cos, noshare Impose coeff on ln(vc/p) = 10, OECD cos, share cos, noshare Noes: This able repors resuls from F-ess of he join null hypohesis of opimal risk sharing and a paricular value for ρ (η 1) agains he alernaive of an unresriced graviy model. Baseline sample includes 88 counries as lised in he 1 ρ Appendix, annual daa All bilaeral pairs including rade wih self are included. Zeros in bilaeral rade are replaced by 1 o generae he dependen variable, which is bilaeral impors normalized by imporer s expendiure and exporer s gross oupu. Baseline graviy variables include log disance and six indicaor variables consruced o normalize rade coss o zero wihin counries. The differen panels repor resuls for differen values for ρ (η 1). 1 ρ 22

23 Table 13: Correlaion of log change in relaive prices and log change in relaive consumpion Min p25 p50 p75 Max Prices from daa All OECD non-oecd Esimaed prices, η = 1.5 All OECD non-oecd Esimaed prices, η = 3 All OECD non-oecd Esimaed prices, η = 6 All OECD non-oecd Esimaed prices, η = 9 All OECD non-oecd Noes: This able repors summary saisics on he disribuion of he counry-by-counry ime series correlaions of relaive consumpion and relaive prices for he lised groups of counries. The US is excluded as i is he numeraire in each case. In each panel, he correlaion is based on real consumpion and relaive prices based on a decomposiion of he value of consumpion ino quaniy and price pars using a differen price series. The op panel uses daa on nominal exchange raes and CPIs. The boom panels use he esimaes of P i(1 η) obained by esimaing he unresriced graviy model, wih differen values of η used o back ou P i in each case. Table 14: Coefficien in regression of log change in relaive prices on log change in relaive consumpion daa η = 1.5 η = 3 η = 6 η = 9 All mean p p p min max OECD only mean p p p min max non-oecd only mean p p p min max Noes: This able repors summary saisics on he disribuion across counries of he coefficien on relaive consumpion in he counry-by-counry ime-series regression of log changes in relaive prices on log changes in relaive consumpion, where differen ses of prices are used o decompose he value of consumpion ino price and real quaniy componens. The US is he numeraire in each case. The daa column repors he resuls where he decomposiion is performed using daa on CPIs and nominal exchange raes. The oher columns repor he resuls where he decomposiion is performed using he imporer-year fixed effecs esimaed in he unresriced reduced form graviy equaion, wih a value for η used o conver hese ino price esimaes. 23

24 Table 15: Coefficiens on graviy variables from srucural esimaion ldis ldis*oecd-noecd ldis*noecd-noecd oecd-noecd noecd-noecd (0.00) (0.01) (0.01) 2.47 (0.49) (0.40) (0.00) (0.01) (0.00) (0.56) (0.29) (0.00) (0.01) (0.00) (0.54) 3.07 (0.25) (0.00) 0.02 (0.01) (0.00) (0.56) 3.89 (0.24) (0.00) (0.01) (0.00) (0.64) 5.65 (0.25) (0.00) (0.01) (0.00) (0.64) 3.38 (0.22) (0.00) (0.01) (0.00) (0.78) 5.08 (0.23) (0.00) (0.01) (0.00) (0.74) (0.33) (0.00) 0.05 (0.01) (0.01) (0.57) 0.58 (0.55) (0.00) 0.09 (0.01) (0.00) (0.85) 2.21 (0.30) (0.00) (0.01) (0.00) (0.91) 5.01 (0.33) (0.00) (0.01) (0.00) 0.27 (0.95) 4.88 (0.32) (0.00) (0.01) (0.00) (0.83) 4.44 (0.36) (0.00) 0.13 (0.01) (0.01) (0.75) 3.95 (0.41) (0.00) 0.07 (0.00) (0.00) (0.37) 3.85 (0.27) (0.00) (0.01) (0.00) (0.40) 2.57 (0.31) (0.00) 0.16 (0.00) (0.00) (0.34) 2.75 (0.30) (0.00) 0.11 (0.00) (0.00) (0.37) 0.43 (0.36) (0.00) 0.08 (0.01) (0.00) (0.41) 3.20 (0.28) (0.00) 0.02 (0.01) (0.00) (0.43) 2.29 (0.32) (0.00) 0.05 (0.01) (0.00) (0.44) 2.74 (0.30) (0.00) (0.01) (0.00) (0.49) 4.60 (0.25) (0.00) (0.01) (0.00) (0.55) 5.95 (0.28) (0.00) (0.01) (0.00) 0.42 (0.56) 5.78 (0.31) (0.00) (0.01) (0.00) 0.80 (0.54) 4.92 (0.28) (0.00) (0.01) (0.00) 0.55 (0.53) 4.06 (0.31) (0.00) (0.01) (0.00) 0.51 (0.57) 3.85 (0.34) (0.00) (0.01) (0.00) 0.48 (0.55) 3.83 (0.31) (0.00) (0.01) (0.00) 0.41 (0.53) 4.99 (0.27) (0.00) (0.01) (0.00) 0.86 (0.57) 6.77 (0.29) (0.00) (0.01) (0.00) 1.63 (0.58) 6.64 (0.26) Noes: This able repors he esimaed coefficiens on he graviy variables included in he srucural esimaion of he nonlinear graviy equaion. The model is independenly esimaed for each year. The sandard errors repored are analyic robus sandard errors. These esimaes are used o consruc he fied values of rade coss used in he counerfacual exercises. 24

25 Table 16: Summary saisics on fied values of rade coss, srucural model All OECD p05 p25 p50 p75 p95 p05 p25 p50 p75 p95 ea = 9 ea = ea = 6 ea = ea = 3 ea = Noes: This able repors summary saisics on he disribuion of he fied h values of rade coss for bilaeral pairs i j, expressed as a fracion of he producer price. These are calculaed as 100 exp 1 P i J 1 η n=1 ˆγndik n 1. I repor hese fied values for he esimaes of he coefficiens on graviy variables (ˆγ) from esimaing he srucural version of he graviy model. I repor saisics separaely for he sample as a whole and for he OECD, hough he coefficiens are aken from he pooled esimaion in boh cases. Alhough fied rade coss can be calculaed for every year, I repor he only a 5-year inervals o save on space. I repor saisics for hree differen assumpions abou he value of η. Table 17: Summary saisics on compensaing variaion, populaion-weighed avg min p25 p50 p75 max Opimal risk sharing in OECD only All OECD non-oecd Opimal risk sharing in full sample All OECD non-oecd Opimal risk sharing for all, no rade coss All OECD non-oecd Noes: This able repors populaion-weighed summary saisics on he disribuion of δ, he measure of compensaing variaion based on a measure of ex-pos welfare ha is a simple average of per-period welfare. These disribuions are repored for he hree counerfacual exercises described in he ex relaive o he baseline esimaed disribuion of real consumpion, and for he full sample as well as he OECD and non-oecd subsamples.the hree counerfacual exercises are firs, he imposiion of opimal risk sharing beween OECD counries, second, he imposiion of opimal risk sharing in he world as a whole, and hird, opimal risk sharing and zero rade coss in he world as a whole. The baseline in each case is based on he srucural esimaion of he nonlinear graviy equaion. For boh fied and counerfacual exercises, {η, ρ} = {6, 2}. The populaion weighs are he average share of populaion of he relevan sample (All, OECD, non-oecd) over he period. 25