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Structural gravity equations with intensive and extensive margins

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  • Matthieu Crozet
  • Pamina Koenig

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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File URL: http://economix.fr/pdf/dt/2007/WP_EcoX_2007-36.pdf
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Bibliographic Info

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
Date of revision:
Handle: RePEc:drm:wpaper:2007-36

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

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  1. Hélène Erkel-Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 35(2), pages 282-306, May.
  2. Pierre-Philippe Combes & Miren Lafourcade, 2005. "Transport costs: measures, determinants, and regional policy implications for France," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 5(3), pages 319-349, June.
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