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A Balls-and-Bins Model of Trade

  • Roc Armenter
  • Mikl?s Koren

Many of the facts about the extensive margin of trade—which firms export, and how many products are sent to how many destinations—are consistent with a surprisingly large class of trade models because of the sparse nature of trade data. We propose a statistical model to account for sparsity, formalizing the assignment of trade shipments to country, product, and firm categories as balls falling into bins. The balls-and-bins model quantitatively reproduces the pattern of zero product- and firm-level trade flows across export destinations, and the frequency of multiproduct, multidestination exporters. In contrast, balls-and-bins overpredicts the fraction of exporting firms.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 104 (2014)
Issue (Month): 7 (July)
Pages: 2127-51

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Handle: RePEc:aea:aecrev:v:104:y:2014:i:7:p:2127-51
Note: DOI: 10.1257/aer.104.7.2127
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