Trade Elasticities in General Equilibrium: Demand, Supply, and Aggregation

Abstract

Abstract We develop a general equilibrium model of international trade that incorporates imperfect factor mobility, product entry, and external returns to scale into a unified framework. The effects from these microeconomic channels can be summarized by two composite elasticities that govern supply and aggregation. We structurally derive export supply and import demand curves, develop a heteroskedastic estimator, and estimate supply, aggregation, and demand elasticities across international product markets. Employing our estimated model, we evaluate the impact of recent US protectionist policies and highlight the importance of our estimates and general equilibrium effects for tariff passthrough rates and cross-industry employment reallocations.