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Zeros, Quality, and Space: Trade Theory and Trade Evidence

  • Richard Baldwin
  • James Harrigan

Bilateral, product-level data exhibit a number of strong patterns that can be used to evaluate international trade theories, notably the spatial incidence of "export zeros" (correlated with distance and importer size), and of export unit values (positively related to distance). We show that leading theoretical trade models fail to explain at least some of these facts, and propose a variant of the Melitz model that can account for all the facts. In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms' heterogeneous cost. (JEL F11, F14, F40)

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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 3 (2011)
Issue (Month): 2 (May)
Pages: 60-88

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Handle: RePEc:aea:aejmic:v:3:y:2011:i:2:p:60-88
Note: DOI: 10.1257/mic.3.2.60
Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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  13. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
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  29. Alejandro Micco & Tomás Serebrisky, 2008. "Competition Regimes and Air Transport Costs: The Effects of Open Skies Agreement," IDB Publications (Working Papers) 46738, Inter-American Development Bank.
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