Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale

Kucheryavyy, Konstantin; Lyn, Gary; Rodrı́guez-Clare, Andrés

doi:10.3386/w22484

Cited by 41 publications

(62 citation statements)

References 40 publications

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“…11 By properly defining markets, our specification allows for external economies of scale in a region-sector, as in Ethier (1982), and technology diffusion between regions, as in Fujita et al (1999) and Lucas and Rossi-Hansberg (2003). When markets are industry groups in a region, our environment accommodates differences across sectors in market structure and economies of scale -e.g., Krugman and Venables (1995), Balistreri et al (2010), Kucheryavyy et al (2016). In addition, the cross-market elasticity of labor productivity, ψ ij , may also incorporate congestion forces implied by the spatial re-allocation of other factors of production (see Online Appendix B).…”

Section: Modelmentioning

confidence: 99%

General Equilibrium Effects in Space: Theory and Measurement

Adão¹,

Arkolakis²,

Esposito³

2019

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as well as numerous participants at many seminars and conferences for helpful suggestions and comments. We also thank Ariel Boyarsky, Zijian He, Guangbin Hong, Jack Liang, and Josh Morris-Levenson for excellent research assistance. Rodrigo Adão thanks the NSF (grant 1559015) for financial support. All errors are our own. A previous version of this paper circulated under the title "Spatial Linkages, Global Shocks and Local Labor Markets: Theory and Evidence." The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Section: Modelmentioning

confidence: 99%

General Equilibrium Effects in Space: Theory and Measurement

Adão¹,

Arkolakis²,

Esposito³

2019

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“…14 Given this, the production structure of our model can be mapped into existing static models with scale effects that show existence and uniqueness of the equilibrium (e.g. Kucheryavyy et al (2016)). …”

Section: Productionmentioning

confidence: 99%

Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement

Caliendo¹,

Opromolla²,

Parro³

et al. 2017

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The economic effects from labor market integration are crucially affected by the extent to which countries are open to trade. In this paper we build a multi-country dynamic general equi-librium model with trade in goods and labor mobility across countries to study and quantify the economic effects of trade and labor market integration. In our model trade is costly and features households of different skills and nationalities facing costly forward-looking relocation decisions. We use the EU Labour Force Survey to construct migration flows by skill and na-tionality across 17 countries for the period 2002-2007. We then exploit the timing variation of the 2004 EU enlargement to estimate the elasticity of migration flows to labor mobility costs, and to identify the change in labor mobility costs associated to the actual change in policy. We apply our model and use these estimates, as well as the observed changes in tariffs, to quantify the effects from the EU enlargement. We find that new member state countries are the largest winners from the EU enlargement, and in particular unskilled labor. We find smaller welfare gains for EU-15 countries. However, in the absence of changes to trade policy, the EU-15 would have been worse off after the enlargement. We study even further the interaction effects between trade and migration policies and the role of different mechanisms in shaping our results. Our results highlight the importance of trade for the quantification of the welfare and migration effects from labor market integration.

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“…However, our simulations suggest that for our parameter values, there is a unique fixed point. Kucheryavyy, Lyn, and Rodríguez-Clare (2016) find that a sufficient condition for uniqueness is that the trade elasticity multiplied by the scale elasticity ( − ςθ in our notation) should be less than 1. Our estimates θ = 7.7 and ς = − 0.035 imply − ςθ = 0.27 ≪ 1 , suggesting a unique equilibrium.…”

Section: A Three Methodological Considerationsmentioning

confidence: 92%

“…Following the literature, z mℓ is distributed Fréchet with shape parameter θ . The final determinant of productivity is external economies of scale, a novel element in multinational production models, but recently incorporated in trade models by Kucheryavyy, Lyn, and Rodríguez-Clare (2016). As with that paper and the related empirical estimation carried out in Bartelme, Costinot, and Rodríguez-Clare (2018), productivity is specified as a power function of industry size in country ℓ .…”

Section: B Costs (Including Frictions)mentioning

confidence: 99%

Brands in Motion: How Frictions Shape Multinational Production

Head

Mayer

2019

American Economic Review

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Following the 2016 Leave vote in the referendum on UK membership in the EU and the election of Donald Trump, trade agreements have entered a period of great instability. To predict the impact of possible disruptions to existing arrangements requires counterfactual analysis that takes into account the complex set of factors influencing the production and marketing strategies of multinational corporations. We estimate a model of multinational decision-making in the car industry. This model predicts the production reallocation and consumer surplus consequences of changes in tariffs and non-tariff barriers induced by US-led protectionism, Brexit, transpacific, and transatlantic integration agreements. (JEL F13, F23, L21, L62, M31)After decades in which free trade agreements proliferated and deepened in scope, 2016 appeared to mark a major turning point. The Leave vote in the UK referendum on EU membership and the election of Donald Trump brought long-standing integration arrangements to the brink of disruption. Pure trade models are ill-equipped for predicting the outcomes of regional dis-integration because they omit an increasingly important feature of the world economy: multinational production (MP). The foreign affiliate structures of multinational corporations (MNCs) complicate matters because they introduce new sets of bilateral relationships. In addition to the origin-destination goods flows of standard trade models, MP models feature interactions between headquarters and subsidiary locations. MNCs must decide which of their network of production facilities will serve each market. Furthermore, because MNCs are typically multiproduct firms, they face decisions over which subset of varieties to offer in each of the markets where they choose to operate distribution facilities. Each of these decisions is likely to be influenced by distinct bilateral frictions.

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Grounded by Gravity: A Well-Behaved Trade Model with Industry-Level Economies of Scale

Cited by 41 publications

References 40 publications

General Equilibrium Effects in Space: Theory and Measurement

General Equilibrium Effects in Space: Theory and Measurement

Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement

Brands in Motion: How Frictions Shape Multinational Production

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