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Zeros, Quality and Space: Trade Theory and Trade Evidence

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  • Baldwin, Richard
  • Harrigan, James

Abstract

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.

Suggested Citation

  • Baldwin, Richard & Harrigan, James, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," CEPR Discussion Papers 6368, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:6368
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    More about this item

    Keywords

    Heterogeneous-firm trade models; QHFT model; Quality and trade; Testing trade theories;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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