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Structural Gravity Equations with Intensive and Extensive Margins

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Author Info
Matthieu Crozet
Pamina Koenig

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Abstract

Recent trade models with heterogenous firms have considerable consequences on the interpretation of gravity equations. Chaney (2008) shows that the effect of distance on trade margins incorporates three parameters: the elasticity of substitution between goods, the elasticity of trade costs with respect to distance, and the degree of firm heterogeneity. We structurally estimate the parameters of trade flows in Chaney’s model using French firm-level export data for 1986-1992, and controlling for the fixed costs of exporting. Our estimated parameters are consistent, for 27 out of 34 industries, with the theoretical model. They also allow us to evaluate the effects of transport cost separately from the effects of tarifs, without having to resort to detailed data on trade frictions.

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Paper provided by CEPII research center in its series Working Papers with number 2008-30.

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Date of creation: Dec 2008
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Handle: RePEc:cii:cepidt:2008-30

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Keywords: Gravity equations; international trade; firm heterogeneity;

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F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

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