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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

New trade models with heterogeneous firms have had a consequent influence on gravity equations. According to Chaney (2007) and Melitz and Ottaviano (2005), the theoretical relationship between trade costs and trade flows is the sum of the effect of trade costs on the number of exporting firms (the extensive margin) and the value of individual exports (the intensive margin). The distinctive effect of distance on the two margins deeply modifies predictions of the trade literature, among which the sectoral effect of trade policies. Using French firms-level export data to 61 countries, on the period 1989-1992, we provide unbiased structural estimates of the three parameters governing trade elasticities with respect to distance. This dissection of the gravity equation provides consistent evidence in favor of heterogeneous firms models of trade.

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Paper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2007-36.

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Length: 31 pages
Date of creation: 2007
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Handle: RePEc:drm:wpaper:2007-36

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Related research
Keywords: Gravity equation; International trade; Firm heterogeneity.;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  7. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Hillberry, Russell & Hummels, David, 2008. "Trade responses to geographic frictions: A decomposition using micro-data," European Economic Review, Elsevier, vol. 52(3), pages 527-550, April. [Downloadable!] (restricted)
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  11. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
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  19. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Balazs Murakozy & Gabor Bekes, 2009. "Temporary Trade," IEHAS Discussion Papers 0909, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
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