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Trade Flows, Multilateral Resistance, and Firm Heterogeneity
Author:
Mr. Alberto Behar
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Benjamin D. Nelson null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 297
Language:
English
Publication Date:
20 Dec 2012
DOI:
https://doi.org/10.5089/9781475574081.001
ISBN:
9781475574081
ISSN:
1018-5941
Pages:
39
Keywords:
WP; trade cost; Gravity models; multilateral resistance; firm heterogeneity; trade elasticity; trade flow; World trade resistance; trade response; trade elasticities net; trade friction; Plurilateral trade; Trade balance; Exports; Multilateral trade; Imports; Global; Country-pair GDP share
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selection into trade, while accommodating asymmetries in trade flows. A new equation for the proportion of exporting firms takes a gravity form, such that the extensive margin is also affected by multilateral resistance. We develop Taylor approximated multilateral resistance terms with which to capture the comparative static effects of changes in trade costs. For isolated bilateral changes in trade frictions, multilateral resistance effects are small for most countries. However, if all countries reduce their trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in most cases, despite the larger trade elasticities implied by firm heterogeneity. As a consequence, the world-wide trade response, though positive, is much lower.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund