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American Economic Review Vol. 107 No. 3 2017

Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade

Rodrigo Adão1; Arnaud Costinot2; Dave Donaldson3

1 Department of Economics, Princeton University, Fisher Hall, Princeton, NJ 08544 (e-mail: ) · 2 Department of Economics, MIT, 50 Memorial Drive Building E52, Cambridge, MA 02142, and NBER (e-mail: ) · 3 Department of Economics, Stanford University, 579 Serra Mall, Stanford, CA 94305, and NBER (e-mail: )

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Abstract

We develop a methodology to construct nonparametric counterfactual predictions, free of functional form restrictions on preferences and technology, in neoclassical models of international trade. First, we establish the equivalence between such models and reduced exchange models in which countries directly exchange factor services. This equivalence implies that, for an arbitrary change in trade costs, counterfactual changes in the factor content of trade, factor prices, and welfare only depend on the shape of a reduced factor demand system. Second, we provide sufficient conditions under which estimates of this system can be recovered nonparametrically. Together, these results offer a strict generalization of the parametric approach used in so-called gravity models. Finally, we use China's recent integration into the world economy to illustrate the feasibility and potential benefits of our approach.

DOI
10.1257/aer.20150956
Volume
107
Issue
3
Pages
633-689
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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