"Supply Function Competition and Exporters: Nonparametric Identification and Estimation of Productivity Distributions and Marginal Costs" with Quang H.Vuong
____ In this paper we develop a structural model in which exporters are competing in supply functions and study the nonparametric identifification and estimation of their productivity distributions and marginal costs using disaggregated bilateral trade data. We not only propose a novel way of estimating productivities using auction methodologies, but also our identification and estimation methodology makes an important contribution to the empirical auction literature: We show that the underlying structure is identified nonparametrically even if we do not observe the entire schedules, but observe only the transaction points instead; whereas the methodologies in the literature of empirical auctions depend heavily on the fact that the entire bid/supply schedule is observed. Moreover, in view of the recent studies in international trade that have shown the sensitivity of the gains from trade estimates to the parametrization of productivity distributions, maintaining a flexible structure for productivity distributions is also important in many respects. We apply our model to the German market for manufacturing imports for 1990 using disaggregated bilateral trade data, which consists only of trade values and traded quantities. We recover the destination-source specific productivity distributions and destination-source specific marginal cost functions nonparametrically. Our empirical results do not support the distributional assumptions that are commonly made in the international trade literature such as Fréchet and Pareto. In particular, we find that the productivity distributions are not unimodal; low productivities are more likely to occur as expected, but there is not a single mode. Our results provide important insights about cross country and cross destination differences in productivity distributions, trade costs and markups.
"Nonparametric Identification and Estimation of Productivity Distributions and Trade Costs" with Quang H.Vuong
_This paper studies the nonparametric identification and estimation of the productivity distributions and trade costs in an Eaton and Kortum (2002) type Ricardian trade model. In Eaton and Kortum (2002) the productivity distributions of countries are assumed to come from a certain parametric family, Fréchet, and it has now become a common tradition in models of international trade to use either Fréchet or Pareto distributions to represent the distribution of productivities. These parametrizations provide great analytical convenience; however, recent studies show that gains from trade estimates are very sensitive to these parametrizations. In order to quantify the welfare gains from trade and answer related policy questions, checking the validity of these parametrizations and analyzing how productivity distributions behave is very important. In view of this, we keep a flexible structure for productivity distributions and perform similar counterfactuals as in Eaton and Kortum (2002) and variants, and compare the estimated welfare results to those of the current literature. We also recover destination-source-sector specific trade costs nonparametrically, which can never be fully observed in the data yet very crucial in welfare analysis. The productivity distributions and trade costs we recover are both country and sector specific, which provides important insights about not only cross country differences in productivity distributions and trade costs but also differences across sectors. Our identification and estimation strategy gains insights from the empirical auction literature since the setup is very similar. However, our identification and estimation methodology will be novel in the sense that we face additional problems resulting from the nature of the trade data. Our methodology does not require data on prices which are usually quite hard to obtain and manages to identify the underlying structure by using only the disaggregated simple bilateral trade data which consist only of trade values (expenditures) and traded quantities.
"An Empirical Application of the Supply Function Competition Model to Multiple Markets"
_In Pehlivan and Vuong (2014), the supply function competition model is applied to a single market. This paper is an extension of that application to multiple markets. Again using bilateral trade data, the productivity distributions and the marginal costs of exporters across different markets/destinations are obtained. This allows us to check whether the productivity distribution of an exporter differs across destinations. Moreover, the comparison of the marginal cost of an exporter across different destinations provides valuable insights about trade costs.