Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade
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Author(s)
Adao, Rodrigo
Costinot, Arnaud
Donaldson, Dave
Date Issued
March 2017
Journal
American Economic Review
Publisher
American Economic Association
Citation
Adao, Rodrigo, Arnaud Costinot, and Dave Donaldson. “Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade.” American Economic Review 107, no. 3 (March 2017): 633–689.
Version
Final published version
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.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/AER.20150956
