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Aggregating from micro to macro patterns of trade

Redding, Stephen and Weinstein, David E. (2017) Aggregating from micro to macro patterns of trade. CEP Discussion Papers (CEPDP1513). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

We develop a new framework for aggregating from micro to macro patterns of trade. We derive price indexes that determine comparative advantage across countries and sectors and the aggregate cost of living. If firms and products are imperfect substitutes, we show that these price indexes depend on variety, average demand/quality and the dispersion of demand/quality-adjusted prices, and are only weakly related to standard empirical measures of average prices, thereby providing insight for elasticity puzzles. Of the cross-section (time-series) variation in comparative advantage, 50 (90) percent is accounted for by variety and average demand/quality, with average prices contributing less than 10 percent

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2017 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HF Commerce
JEL classification: F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
F - International Economics > F1 - Trade > F14 - Country and Industry Studies of Trade
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 01 Feb 2018 12:16
Last Modified: 20 Feb 2019 04:04
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/86607

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