Decomposition of extensive and intensive margin impacts of trade policies

Xin Zhao, Jeff Luckstead, Stephen Devadoss

Research output: Contribution to journalArticlepeer-review

Abstract

Using a multi-region heterogeneous-firm trade model, this paper develops a method to decompose volumes and values of domestic sales, bilateral trade, total production and consumption into their intensive and extensive margins. With the free-entry condition, the extensive margin is further decomposed into two subcategories: operating-extensive margin and entrance/exit-extensive margin. This method can provide ex ante predictions on gains and losses in the margins of member and nonmember countries following a trade agreement. We apply our decomposition methods to quantitatively analyse the impacts of CETA between Canada and the European Union on the world processed food industry.

Original languageEnglish
JournalWorld Economy
DOIs
StateAccepted/In press - 2021

Keywords

  • decomposition
  • extensive margin
  • intensive margin
  • monopolistic competition
  • trade agreement

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