The Long and Short (Run) of Trade Elasticities

Christoph Boehm; Andrei A. Levchenko; Nitya Pandalai-Nayar

doi:10.1257/aer.20210225

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American Economic Review Vol. 113 No. 4 2023

The Long and Short (Run) of Trade Elasticities

Christoph Boehm¹; Andrei A. Levchenko²; Nitya Pandalai-Nayar¹

¹ University of Texas at Austin and NBER (email: ) · ² University of Michigan and NBER (email: )

Abstract

When countries change most favored nation (MFN) tariffs, partners that trade on MFN terms experience plausibly exogenous tariff changes. Using this variation, we estimate the trade elasticity at short and long horizons with local projections. We find that the elasticity of tariff-exclusive trade flows is −0.76 in the short run, and approximately −2 in the long run. Our long-run estimates are smaller than typical in the literature, and it takes 7 to10 years to converge to the long run, implying that (i) the welfare gains from trade are high and (ii) there are substantial convexities in the costs of adjusting exports.

DOI: 10.1257/aer.20210225
Volume: 113
Issue: 4
Pages: 861-905
Language: en
Sources: bibtex:phds-export.bib openalex crossref

The Long and Short (Run) of Trade Elasticities

Abstract

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