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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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-09/cesifo1_wp1276.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1276.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1276
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  1. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  2. J. M. C. Santos Silva & Silvana Tenreyro, 2003. "Gravity-defying trade," Working Papers 03-1, Federal Reserve Bank of Boston.
  3. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2004. "The distance puzzle: on the interpretation of the distance coefficient in gravity equations," Economics Letters, Elsevier, vol. 83(3), pages 293-298, June.
  4. 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.
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  7. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
  8. Andrew Bernard & J. Bradford Jensen & Peter Schott, 2003. "Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics," IFS Working Papers W03/10, Institute for Fiscal Studies.
  9. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
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  12. Jean-François BRUN & Céline CARRERE & Jaime MELO DE & Patrick GUILLAUMONT, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," Working Papers 200215, CERDI.
  13. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  14. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
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  16. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
  17. Simon J. Evenett & Wolfgang Keller, 2002. "On Theories Explaining the Success of the Gravity Equation," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 281-316, April.
  18. Barry Eichengreen & Douglas A. Irwin, 1996. "The Role of History in Bilateral Trade Flows," NBER Working Papers 5565, National Bureau of Economic Research, Inc.
  19. Alan V Deardorff, 2004. "Local Comparative Advantage: Trade Costs and the Pattern of Trade," Working Papers 500, Research Seminar in International Economics, University of Michigan.
  20. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
  21. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
  22. Romain Wacziarg & Karen Horn Welch, 2003. "Trade Liberalization and Growth: New Evidence," NBER Working Papers 10152, National Bureau of Economic Research, Inc.
  23. 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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  25. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
  26. repec:rus:hseeco:123558 is not listed on IDEAS
  27. Kristian Skrede Gleditsch, 2002. "Expanded Trade and GDP Data," Journal of Conflict Resolution, Peace Science Society (International), vol. 46(5), pages 712-724, October.
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