GEP 10/24: The Empirics of General Equilibrium Trade Theory: What Have We Learned?

Summary

This paper provides a selective survey of over half a century of research linking the neoclassical trade model to the data. It highlights that the model is both empirically validated and compatible with many empirical regularities.

Abstract

This paper provides a selective survey of over half a century of research linking the neoclassical trade model to the data. Tensions between restrictive formulations of the model and real world complexities have launched a research agenda aimed at refining and reformulating theory to provide more convincing links between theoretical specification and empirical research design. Three lessons stand out. First, competitive and new trade theory models are complementary rather than competing ways to look at many existing empirical regularities. Second, the Ricardian formulation has proved to be a useful framework for structural estimation exercises regarding the pattern of international specialization. Third, empirical confirmations of the core predictions of the model provide scientific support for employing the competitive trade model in structural estimation.

Download the paper in PDF format

Authors

Daniel M. Bernhofen

View all GEP discussion papers | View all School of Economics featured discussion papers