Decomposing episodes of large growth in international trade

Abstract

AbstractI use bilateral trade data from a variety of countries to decompose the patterns of trade growth across various goods classifications during episodes of rapid growth in bilateral trade. I find that bilateral trade growth during these episodes is fragmented—less than 5% of goods classifications account for over 65% of overall bilateral trade growth. I quantitatively assess whether “Melitz‐style" trade models, with heterogeneous productivity firms, CES demand and fixed and variable costs of exporting, can match the observed fragmentation of bilateral trade growth. I find the standard model generates less than 40% of the observed fragmentation in the data, as measured by the share of total trade growth accounted for by various quantiles of goods classifications. However, by incorporating heterogeneous tariff and productivity changes imputed from US production and export data, I find that the model generates approximately 90% of the magnitude of fragmentation of trade growth across goods as in the data.