Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade / Rodrigo Adao, Arnaud Costinot, Dave Donaldson.

Format:

Book

Author/Creator:

Adao, Rodrigo.

Contributor:

National Bureau of Economic Research.

Costinot, Arnaud.

Donaldson, Dave.

Series:

Working Paper Series (National Bureau of Economic Research) no. w21401.

NBER working paper series no. w21401

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

We develop a methodology to construct nonparametric counterfactual predictions, free of functional-form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in the factor content of trade, factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions under which estimates of this system can be recovered nonparametrically. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China's recent integration into the world economy to illustrate the feasibility and potential benefits of our approach.

Notes:

Print version record

July 2015.