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Import Prices, Variety and the Extensive Margin of Trade

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  • Economics

Abstract

No 2006 – 17 November Import Prices, Variety and the Extensive Margin of Trade _____________ Guillaume Gaulier Isabelle Méjean Import Prices, Variety and the Extensive Margin of Trade Guillaume Gaulier Isabelle Méjean No 2006 – 17 October Import Prices, Variety and the Extensive Margin of Trade Contents 1 Introduction 8 2 Endogenous variety supply and import price index 10 2.1 Conventional measures of import prices . . . . . . . . . . . . . . . . . . . . 10 2.2 The exact price index with CES preferences . . . . . . . . . . . . . . . . . . 11 3 Empirical strategy 15 3.1 A model of import demand and supply . . . . . . . . . . . . . . . . . . . . . 15 3.2 Estimated equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.3 Computation of substitution elasticities . . . . . . . . . . . . . . . . . . . . . 18 4 The Data 18 4.1 The Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4.2 Magnitude of extensive margins in BACI . . . . . . . . . . . . . . . . . . . . 20 5 The Results 22 5.1 Estimated elasticities of substitution . . . . . . . . . . . . . . . . . . . . . . 23 5.2 Sectorial bias in measured prices . . . . . . . . . . . . . . . . . . . . . . . . 23 5.3 Aggregated measurement bias . . . . . . . . . . . . . . . . . . . . . . . . . 26 6 Conclusion 29 A.1 Derivation of the estimated equation 33 A.2 Decomposition of import growth in BACI 33 A.2.1 Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 A.2.2 Sectoral decomposition of import growth . . . . . . . . . . . . . . . . . . 35 A.3 Additional empirical results 37 3 CEPII, Working Paper No 2006-17 IMPORT PRICES, VARIETY AND THE EXTENSIVE MARGIN OF TRADE SUMMARY Explaining the determinants of relative prices is a recurrent matter of interest in international macroeconomics. Recently, several models have used tools of the New Trade Theory to emphasize the price impact of firms’ entry decisions in national mar

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