Trade Elasticities and “CAT” Exports

Authors: Aksel Erbahar and Vincent Rebeyrol (presenter)

Abstract: Using firm-product level data, we first document that for almost all Turkish exporters, the set of products exported differ substantially from the set of produced products, a fact recently labelled as “CAT” (carry-along trade). We then compare this “CAT” trade to trade of produced products, by estimating gravity equations at the aggregate level and at the firm level. At the aggregate level, comparing flows of the same products, we find that trade of “CAT” products is more sensitive than trade of produced products to trade costs and market size, suggesting lower welfare gains from this type of trade. Strikingly, at the firm level, we find instead that these elasticities are lower for “CAT” products. We propose a theoretical explanation for this puzzle, based on the interaction between firm selection and demand uncertainty.