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Title: Aggregating From Micro to Macro Patterns of Trade

Author(s): Stephen J. Redding and David E. Weinstein

Publication Date: November 2017

Keyword(s): comparative advantage, prices, Quality, Trade and Variety

Programme Area(s): International Trade and Regional Economics

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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Bibliographic Reference

Redding, S and Weinstein, D. 2017. 'Aggregating From Micro to Macro Patterns of Trade'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12446