Abstract: This paper applies a widely-used class of quantitative trade models to evaluate the usefulness of measures of revealed comparative advantage (RCA) in academic and policy analyses. I find that, while commonly used indexes are generally not consistent with theoretical notions of comparative advantage, certain indexes can be usefully employed for certain tasks. I explore several common uses of RCA indexes and show that different indexes are appropriate when attempting to (a) uncover countries' fundamental patterns of comparative advantage, (b) evaluate the differential effect of changes in trade barriers across producers of different products, or (c) identify countries who are relatively close competitors in a given market.
Abstract: A widely used class of quantitative trade models implicitly assumes that patterns of comparative advantage take a specific form such that they have no influence over the effect of trade barriers on aggregate trade flows and welfare. In this paper, I relax this assumption, developing a framework in which to analyze the role of interactions among countries' patterns of comparative advantage in determining the aggregate effects of trade barriers. My model preserves much of the tractability of standard aggregate quantitative trade models while allowing for the effects of any pattern of comparative advantage, across many products and countries, to be taken into account. After fitting my model to product-level trade data, I find that the composition of trade flows is quantitatively important in determining the welfare gains from trade and the aggregate effects of trade barriers. A key finding is that the welfare gains from trade tend to be larger and more skewed in favor of low-income countries than an aggregate model would suggest.
Abstract: This paper considers the consequences of aggregate estimation of nonlinear empirical models with two-way heterogeneous, multiplicative fixed effects. Aggregate estimators cannot control for micro-level interactions of these effects and are thus misspecified. I characterize the bias in aggregate estimates and propose a set of disaggregate pseudo-maximum likelihood (PML) estimators that control for the unobserved effects using a structural gravity equation. I apply these estimators to bilateral trade data, where the micro-level heterogeneity has the interpretation of product-level comparative advantage (PLCA), and find significant bias due to PLCA in more aggregated estimates. After controlling for PLCA, remaining biases due to heteroskedasticity, sample selection, and heterogeneity in the common parameters are relatively small. I also show that the pooled product-level Poisson PML estimator has a number of desirable properties, including that it estimates an ideal index of heterogeneous coefficients and outperforms a product-by-product estimator out-of-sample. Applied to panel data, I find that controlling for PLCA reveals a significant decline in the distance elasticity over time.
Abstract: When wages increase with work experience, estimation of standard labor supply models that assume exogenous wage formation suffers from omitted variable bias and produces downward-biased estimates of the intertemporal elasticity of substitution (IES). We test this theory in a novel way. Using a large data set of the daily labor supply decisions of Florida fishermen, we identify a sample of highly-experienced, near-retirement fishermen, for whom the returns to experience are negligible and the standard model is a close approximation. Using this sample, we estimate an IES of 2.7, more than twice estimates that ignore the role of learning-by-doing.
Abstract: This paper develops a quantitative, multi-country model of endogenous growth, international trade, and international knowledge flows in order to understand how access to both foreign products and technologies, together, influences innovation incentives and the world distribution of income. An endogenous product cycle arises in equilibrium, in which innovative countries engage in both horizontal and vertical research, while others far from the technological frontier specialize in learning about and applying research previously conducted abroad. The effect of trade barriers on the level and dispersion of income across countries is found to be larger than would be predicted by a static trade model, and the effect of access to international knowledge flows is also quantitatively important and dependent on trade flows. For instance, halving the cost of learning reduces income dispersion by 23%, while doing so after eliminating asymmetric international trade barriers reduces income dispersion by only 10%.
Abstract: I propose a method of moments estimator of revealed comparative advantage based on a flexible specification of trade flows that is consistent with a large class of gravity models of international trade. I show that this estimator has many desirable properties. It is theoretically consistent with the classical notion of Ricardian comparative advantage and is easily computed, even for very large samples. Statistical inference is straightforward, and it is closely related to a commonly-used estimator in the gravity literature that is known to be robust to various forms of heteroskedasticity and measurement error common to trade data.