Gains from trade: Demand, supply, and idiosyncratic shocks
Ruben Dewitte,
Bruno Merlevede,
Glenn Rayp
Abstract:SummaryFirm‐level sales are often used as a proxy for productivity to quantify welfare gains from trade (GFT) using firm‐level data. This approach ignores the fact that heterogeneity in firm‐level sales is driven by factors other than productivity. Our theoretical and empirical analysis reveals that using sales as a proxy conflates persistent productivity with transitory demand and supply shocks, resulting in an over‐dispersed productivity distribution. Assigning this shock‐inflated productivity to a modeled e… Show more
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