Aggregating From Micro to Macro Patterns of Trade
February 2018
Working Paper Number:
CES-18-10
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.
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:
demand,
market,
macroeconomic,
sale,
cost,
substitute,
import,
export,
price,
prices products,
monopolistic,
average,
good,
specialization,
heterogeneity,
oligopoly,
competitiveness,
pricing,
competitor,
advantage
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Bureau of Labor Statistics,
National Science Foundation,
Center for Economic Studies,
Ordinary Least Squares,
National Bureau of Economic Research,
North American Industry Classification System,
Heckscher-Ohlin,
Harmonized System,
UC Berkeley
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