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Exploring the Intensive and Extensive Margins of World Trade

  • Gabriel J. Felbermayr
  • Wilhelm Kohler


World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post-World War II growth in manufacturing world trade along these two margins. We propose a "corner-solutions version" of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called "distance puzzle". It also finds more convincing evidence than recent literature that WTO-membership enhances trade.

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Article provided by Springer & Institut für Weltwirtschaft (Kiel Institute for the World Economy) in its journal Review of World Economics.

Volume (Year): 142 (2006)
Issue (Month): 4 (December)
Pages: 642-674

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Handle: RePEc:spr:weltar:v:142:y:2006:i:4:p:642-674
DOI: 10.1007/s10290-006-0087-3
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  1. Simon J. Evenett & Wolfgang Keller, 1996. "On Theories Explaining the Success of the Gravity Equation," International Trade 9608001, EconWPA, revised 13 Jun 1997.
  2. Claudia M. Buch & Jörn Kleinert & Farid Toubal, 2003. "The Distance Puzzle: On the Interpretation of the Distance Coefficient in Gravity Equations," Kiel Working Papers 1159, Kiel Institute for the World Economy.
  3. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  4. Peter Egger & Michael Pfaffermayr, 2004. "Distance, trade and FDI: a Hausman-Taylor SUR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 227-246.
  5. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
  6. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
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  8. Barry Eichengreen & Douglas A. Irwin, 1998. "The Role of History in Bilateral Trade Flows," NBER Chapters, in: The Regionalization of the World Economy, pages 33-62 National Bureau of Economic Research, Inc.
  9. Jean-François Brun & Céline Carrère & Patrick Guillaumont & Jaime de Melo, 2015. "Has Distance Died? Evidence from a Panel Gravity Model," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 13, pages 299-320 World Scientific Publishing Co. Pte. Ltd..
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  18. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, vol. 58(1), pages 1-18, October.
  19. J. M. C. Santos Silva & Silvana Tenreyro, 2003. "Gravity-defying trade," Working Papers 03-1, Federal Reserve Bank of Boston.
  20. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December.
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  22. Rozanski, Jerzy & Yeats, Alexander, 1994. "On the (in)accuracy of economic observations: An assessment of trends in the reliability of international trade statistics," Journal of Development Economics, Elsevier, vol. 44(1), pages 103-130, June.
  23. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72, January.
  24. Alan V. Deardorff, 2014. "Local comparative advantage: Trade costs and the pattern of trade," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(1), pages 9-35, 03.
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  27. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
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