Supply Capacity, Vertical Specialization and Tariff Rates: The Implications for Aggregate U.S. Trade Flow Equations

Abstract

This paper re-examines aggregate and disaggregate import and export demand functions for the United States for 1975-2007 and suggests that the standard models omit important factors. The rising importance of vertical specialization combined with decreasing tariffs rates explains some of results. Accounting for these factors yields more plausible estimates of income elasticities.