NEW DEVELOPMENTS IN EMPIRICAL TRADE ANALYSIS

This presentation reviews empirical research in international trade, which until recently was lacking in theoretical support. It has undergone a resurgence over the last two decades. To fit the context, we first present the empirical context of traditional trade theory where the cross-country differences in opportunity costs of production (comparative advantage) comprises the basis for international trade. We briefly turn to empirical analyses of new trade theory with love for variety and increasing returns to scale where trade in similar goods across similar countries can occur. The empirical analyses in these models are however confined to relatively aggregated data on countries and industries. With this background we move to present the new developments based on insights from micro data that has refined and made understanding of international trade more realistic and theoretically consistent. Empirical studies using more finely detailed trade data on individual products at firm and transaction level is the new normal in empirical trade analysis using firm and plant level datasets. We briefly touch upon the Donaldson et al line of work where theoretically derived measure of trade costs, comparative advantage and market access are developed and empirically assessed. It is high time that in our empirical approaches to patterns and policy in agricultural trade, we wake up to this reality.

MODERATOR:
Mamata Pradhan, Research Coordinator, IFPRI-SAR