Replication and Extension of Dynamic Trade Elasticity Estimates

This paper replicates the dynamic trade elasticity estimates of Boehm et al. (2023) and examines the applicability of their methodology to the European Union and Denmark. Using an instrumental-variable approach with local projections, we investigate how trade flows respond to tariff changes over time. The replication broadly reproduces the original findings, showing that trade elasticities become increasingly negative over longer horizons. Applying the methodology to EU countries yields economically plausible estimates, although with reduced statistical precision. For Denmark, however, the estimates are less clear and sensitive to model specifications. These findings suggest that the identification strategy relies heavily on cross-sectional variation and is therefore less suitable for estimating dynamic trade elasticities for individual small open economies.

Reference: Boehm, C. E.; Levchenko, A. A. and Pandalai-Nayar, N. (2023), ‘The long and short (run) of trade elasticities’, American Economic Review 113(4), 861–905.