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Understanding Interstate Trade Patterns

Hakan Yilmazkuday Journal of International Economics

2012; JIE

Volume 86, Issue 1, 58–166. Yilmazkuday (2012; JIE) Understanding Interstate Trade Patterns Volume 86, Issue 1, 58–166. 1 / 4

Highlights

Interstate trade patterns are investigated within the U.S. The following elasticities are all identi…ed:

Elasticity of substitution across goods Elasticity of substitution across varieties of each good Elasticity of distance for each good.

Elasticity of substitution estimates are lower. Elasticity of distance estimates are higher. Home-bias e¤ects are decreasing over time.

Yilmazkuday (2012; JIE) Understanding Interstate Trade Patterns Volume 86, Issue 1, 58–166. 2 / 4

Bilateral Interstate Trade at the Good Level

Under CES, the bilateral trade value from state i to state r for good j is obtained as: log

• X j

r,i

• |

{z }

Bilateral Trade of Good j

= B B B B B B B @ log

• Pj

i,i

1ηj | {z }

Source E¤ects

+ log

• Pj

r

ηj C j

r

• |

{z }

Destination E¤ects

δjηj log

• Dj

r,i

• |

{z }

Trade Costs

+ log

• θj

r,i

• |

{z }

Residuals

1 C C C C C C C A

ηj is the elasticity of substitution across varieties of good j δj is the elasticity of distance

ηj versus δj are identi…ed using both trade and production-side data. Commodity Flow Survey data (2007; 2-digit) are used for trade. Gross markup data (from Census Bureau) are used for estimating ηj’s. The average ηj (across industries) is estimated as 3.01. The average δj (across industries) is estimated as 0.45.

Yilmazkuday (2012; JIE) Understanding Interstate Trade Patterns Volume 86, Issue 1, 58–166. 3 / 4

Aggregate Interstate Trade at the Good Level

Under CES, the good-level import value of state r for good j is

• btained as:

log

• Mj

r

• |

{z }

Total Imports of Good j

= B B B B @ (1 ε) log

• Pj

r

• | {z }

Constructed Price Index

+ log (Pr)ε Cr

• |

{z }

State-Fixed E¤ects

+ log γj

r

| {z }

Residuals

1 C C C C A

ε is the elasticity of substitution across goods Pj

r is constructed using estimated variables/parameters according to:

Pj

r

@∑

i

θj

r,i

• Pj

i,i

• Dj

r,i

δj 1ηj 1 A

1 1ηj

ε is estimated as 1.09.

Yilmazkuday (2012; JIE) Understanding Interstate Trade Patterns Volume 86, Issue 1, 58–166. 4 / 4