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2023
- handle: 10670/1.brekh8
- hal: hal-04347301
- doi: 10.1162/rest_a_01369
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info:eu-repo/semantics/altIdentifier/doi/10.1162/rest_a_01369
Ce document est lié à :
info:eu-repo/grantAgreement/EC/FP7/313522/EU/Heterogeneity That Matters for Trade and Welfare/HETMAT
http://creativecommons.org/licenses/by/ , info:eu-repo/semantics/OpenAccess
Mots-clés
Constant Elasticity of Substitution Industrial Organization Oligopoly Trade Tariffs Counterfactual analysis F - International Economics/F.F1 - Trade L - Industrial Organization/L.L1 - Market Structure, Firm Strategy, and Market PerformanceSujets proches
Trade Commercial trade Foreign trade Pattern Model Trade TradeCiter ce document
Keith Head et al., « Poor Substitutes? Counterfactual Methods in IO and Trade Compared », Archive ouverte de Sciences Po (SPIRE), ID : 10.1162/rest_a_01369
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Résumé
Constant elasticity of substitution (CES) demand for monopolistically competitive firm-varieties is a standard tool for models in international trade and macroeconomics. Inter-variety substitution in this model follows a simple share proportionality rule. In contrast, the standard toolkit in industrial organization (IO) estimates a demand system in which cross-elasticities depend on similarity in observable attributes. The gain in realism from the IO approach comes at the expense of requiring richer data and greater computational challenges. This paper uses the data generating process of Berry et al. (1995), BLP, who established the modern IO method, to simulate counterfactual trade policy experiments. We use the CES model as an approximation of the more complex underlying demand system and market structure. Although the CES model omits key elements of the data generating process, the errors are offsetting, allowing it to fit BLP-based predictions closely. For aggregate outcomes, it turns out that incorporating non-unitary pass-through matters more than fixing oversimplified substitution patterns.