International trade and monopolistic competition without CES: Estimating translog gravity

Arbeitspapier

This paper derives a micro-founded gravity equation in general equilibrium based on a translog demand system that allows for endogenous markups and rich substitution patterns across goods. In contrast to standard CES-based gravity equations, trade is more sensitive to trade costs if the exporting country only provides a small share of the destination country's imports. As a result, trade costs have a heterogeneous impact across country pairs, with some trade flows predicted to be zero. I test the translog gravity equation and find strong empirical support in its favor. In an application to the currency union effect, I find that a currency union is only associated with substantially higher bilateral trade if the exporting country provides a small share of the destination country's imports. For other pairs, the currency union effect is modest or indistinguishable from zero.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 3008

Classification and Topics

• Classification: Wirtschaft ; Neoclassical Models of Trade ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation ; Economic Integration
• Subject: translog ; trade costs ; gravity ; currency union ; monopolistic competition ; trade cost elasticity ; heterogeneity ; zero trade ; Außenwirtschaft ; Kosten ; Gravitationsmodell ; Mikroökonomische Fundierung ; Monopolistischer Wettbewerb ; Allgemeines Gleichgewicht ; Währungsunion ; Schätzung ; OECD-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Novy, Dennis
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/38920
• Last update: 10.03.2025, 11:44 AM CET