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Zeros, Quality and Space: Trade Theory and Trade Evidence

  • Baldwin, Richard
  • Harrigan, James

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6368.

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Date of creation: Jun 2007
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Handle: RePEc:cpr:ceprdp:6368
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  1. Demidova, Svetlana, 2005. "Productivity Improvements and Falling Trade Costs: Boon or Bane?," Working Papers 2-05-1, Pennsylvania State University, Department of Economics.
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  10. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
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  14. Matthias Helble & Toshihiro Okubo, 2008. "Heterogeneous Quality Firms and Trade Costs," Discussion Paper Series 220, Research Institute for Economics & Business Administration, Kobe University.
  15. FUJITA, Masahisa & THISSE, Jacques-François, 2002. "Agglomeration and market interaction," CORE Discussion Papers 2002011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  18. 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.
  19. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
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  24. Jeffrey A. Frankel, 1998. "The Regionalization of the World Economy," NBER Books, National Bureau of Economic Research, Inc, number fran98-1, May.
  25. Harrigan, James, 2010. "Airplanes and comparative advantage," Journal of International Economics, Elsevier, vol. 82(2), pages 181-194, November.
  26. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc.
  27. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
  28. Jon Haveman & David Hummels, 2004. "Alternative hypotheses and the volume of trade: the gravity equation and the extent of specialization," Canadian Journal of Economics, Canadian Economics Association, vol. 37(1), pages 199-218, February.
  29. Hansen, Christian B., 2007. "Asymptotic properties of a robust variance matrix estimator for panel data when T is large," Journal of Econometrics, Elsevier, vol. 141(2), pages 597-620, December.
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  33. repec:rus:hseeco:122203 is not listed on IDEAS
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