Recent theoretical work on international trade emphasizes the importance of trade elasticity as the fundamental statistic needed to conduct welfare analysis. Eaton and Kortum (2002) proposed a two-step method to estimate this parameter, where exporter fixed effects are regressed on proxies for...

How do trade costs affect international trade? This paper offers a new approach. We rely on a flexible gravity equation that predicts variable trade cost elasticities, both across and within country pairs. We apply this framework to the effect of currency unions on international trade. While we...

We propose a simple method to identify the effects of unilateral and non-discriminatory trade policies on bilateral trade within a theoretically-consistent empirical gravity model. Specifically, we argue that structural gravity estimations should be performed with data that include not only...

This paper sheds light on serious methodological difficulties of employing the empiric export equation in order to derive long-run trade elasticities. The unreliable estimated price coefficient (Kaldor Paradox) and the potential presence of cointegration are identified as the most relevant...