The paper
This article gives “potential trade” a concrete economic meaning: the trade that would occur if an exporter-specific border friction were removed. It shows how to calculate that friction and simulate the change using a structural gravity model.
Research findings
- An international-trade gravity model, combined with an observation for domestic trade, can recover an exporter-specific border friction.
- The counterfactual respects economy-wide resource constraints and changes in relative prices: additional exports involve a reallocation of trade, including from domestic sales.
Policy takeaways
- Frame export-potential assessments around a defined change in trade costs, so the result has an interpretable economic basis.
- Use general equilibrium analysis to assess the response across markets, rather than treating a gap between predicted and observed exports as automatically available growth.