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Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically

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  • J. M. C. Santos Silva
  • Silvana Tenreyro

Abstract

type="main" xml:id="obes12055-abs-0001"> Helpman, Melitz and Rubinstein [Quarterly Journal of Economics (2008) Vol. 123, pp. 441–487] (HMR) present a rich theoretical model to study the determinants of bilateral trade flows across countries. The model is then empirically implemented through a two-stage estimation procedure. We argue that this estimation procedure is only valid under the strong distributional assumptions maintained in the article. Statistical tests using the HMR sample, however, clearly reject such assumptions. Moreover, we perform numerical experiments which show that the HMR two-stage estimator is very sensitive to departures from the assumption of homoskedasticity. These findings cast doubts on any inference drawn from the empirical implementation of the HMR model.

Suggested Citation

  • J. M. C. Santos Silva & Silvana Tenreyro, 2015. "Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(1), pages 93-105, February.
    • Handle: RePEc:bla:obuest:v:77:y:2015:i:1:p:93-105
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    File URL: http://hdl.handle.net/10.1111/obes.2015.77.issue-1
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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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