Trading with richer and poorer countries: trade integration and regional inequality in Greece

This paper examines the link between increased trade and regional GDP growth across the regional income distribution in Greece during the post-EMU period (2000–2013). By means of quantile regression techniques, panel fixed effects and system generalized method of moments (GMM), we disentangle the effects of EU trade—trading with generally richer countries—versus global trade—in the case of Greece, mostly trading with poorer countries—at several points of the regional income distribution to identify differences in trade elasticities. The analysis finds that the impact of EU trade is highly heterogeneous and mainly affects negatively the economy of the richer regions in Greece. In contrast, the effects of EU trade display insignificant results for the lower-income regions, attributed to the absence of direct substitution effects.

Triplets, quads and quints: Estimating disaggregate trade elasticities with different odds ratios

Trade elasticities are a crucial variable for research on international trade. Caliendo and Parro (2015) provide a novel method to estimate trade elasticities which is based on odds ratio triplets calculated from structural gravity equations. We find that these odds ratios can be set up not only as triplets, but also e. g. as quadruplets (quads) and quintuples (quints). We estimate trade elasticities from triplets, quads and quints for the two digit level of ISIC Rev.3. The corresponding estimates show certain differences, but the results are generally robust. Because the different odds ratios are all theoretically validated, we suggest using them for checking robustness. Benefits could also arise because larger odds ratios might be able to provide more reliable estimates.

Gravity Without Apology: the Science of Elasticities, Distance and Trade

Gravity as both fact and theory is one of the great success stories of recent research on international trade, and has featured prominently in the policy debate over Brexit. We first review the facts, noting the overwhelming evidence that trade tends to fall with distance. We then introduce some expository tools for understanding constant-elasticity-of-substitution theories of gravity as a simple general-equilibrium system. Next, we point out some anomalies with the theory: mounting evidence against constant trade elasticities, and implausible predictions for bilateral trade balances. Finally, we sketch an approach based on subconvex gravity as a promising direction to resolving them.

Export Sophistication and Trade Elasticities

Does a country’s export structure impact the way that exchange rates affect trade? Do more sophisticated products exhibit lower demand elasticities? Using panel data for major exporters over the 1992–2016 period and dynamic ordinary least squares techniques, we find that price elasticities are higher for low-technology goods such as textiles and footwear than for high-technology goods such as pharmaceuticals and medical equipment. We also find that elasticities are larger for less advanced countries such as China than for more advanced countries such as Switzerland. We draw policy implications from these findings for countries exposed to safe haven capital flows, for countries facing long-term appreciation pressures and for countries that specialise in low-technology exports. JEL Classification: F14, F10