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Cultural Links, Firm Heterogeneity and the Intensive and Extensive Margins of International Trade

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  • Paulo Bastos
  • Joana Silva

Abstract

It is well known that cultural links between countries increase bilateral trade. In this paper we exploit Portuguese firm-level data on exports to 199 destinations to investigate the questions: How? Do cultural links increase the number of exporters, or the shipments per exporter? What is the role of firm heterogeneity? The results reveal that cultural links, measured by common language/colonial ties and emigrant communities, are significantly associated with a lower incidence of within-firm export zeros and with larger shipments per exporter. Furthermore, they show that the former of these relationships tends to be magnified by firm size, suggesting that firm heterogeneity is key in shaping the interplay between cultural links and the extensive margin of international trade.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 08/30.

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Handle: RePEc:not:notgep:08/30

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Keywords: Colonial ties; migration; firm heterogeneity; intensive and extensive margins;

References

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  1. Jacques Melitz, 2003. "Language and Foreign Trade," Working Papers, Centre de Recherche en Economie et Statistique 2003-26, Centre de Recherche en Economie et Statistique.
  2. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  3. Baldwin, Richard & Harrigan, James, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6368, C.E.P.R. Discussion Papers.
  4. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, Elsevier, vol. 48(1), pages 7-35, June.
  5. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1707-21, September.
  6. James E. Rauch & Vitor Trindade, 1999. "Ethnic Chinese Networks in International Trade," NBER Working Papers 7189, National Bureau of Economic Research, Inc.
  7. Andersson, Martin, 2007. "Entry costs and adjustments on the extensive margin - an analysis of how familiarity breeds exports," Working Paper Series in Economics and Institutions of Innovation, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies 81, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  8. Matthieu Crozet & Pamina Koenig, 2010. "Structural gravity equations with intensive and extensive margins," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 43(1), pages 41-62, February.
  9. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, Oxford University Press, vol. 75(1), pages 295-316.
  10. Keith Head & John Ries, 1998. "Immigration and Trade Creation: Econometric Evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(1), pages 47-62, February.
  11. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3381, C.E.P.R. Discussion Papers.
  12. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 76(2), pages 302-16, May.
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