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Structural gravity equation with intensive and extensive margins

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  • Matthieu Crozet

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Pamina Koenig

    () (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Université Paris Est - PRES Université Paris-Est, PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres)

Abstract

Recent trade models with heterogenous firms have changed the interpretation of gravity equations. Chaney (2008) shows that the effect of distance on the number of exporters and average exports depend on key parameters characterizing the elements of market structure. We use firm-level export data to estimate the structural parameters of Chaney's model. Controlling for the fixed costs of exporting, our estimated parameters match, for 28 out of 34 industries, the model's theoretical predictions. Our industry parameters allow us to evaluate separately the effect of transport costs and tariffs on trade, without having to resort to detailed data on trade frictions.

Suggested Citation

  • Matthieu Crozet & Pamina Koenig, 2010. "Structural gravity equation with intensive and extensive margins," Post-Print hal-00610937, HAL.
  • Handle: RePEc:hal:journl:hal-00610937
    DOI: 10.1111/j.1540-5982.2009.01563.x
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00610937
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    References listed on IDEAS

    as
    1. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    2. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
    3. Keith Head & John Ries, 2001. "Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade," American Economic Review, American Economic Association, vol. 91(4), pages 858-876, September.
    4. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity (DOI:10.111/j.1467-937x.2007.00463.x)," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 985-985.
    5. Hillberry, Russell & Hummels, David, 2008. "Trade responses to geographic frictions: A decomposition using micro-data," European Economic Review, Elsevier, vol. 52(3), pages 527-550, April.
    6. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    7. Marc J. Melitz & Gianmarco I. P. Ottaviano, 2008. "Market Size, Trade, and Productivity," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 295-316.
    8. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    9. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
    10. Pierre-Philippe Combes & Miren Lafourcade, 2005. "Transport costs: measures, determinants, and regional policy implications for France," Journal of Economic Geography, Oxford University Press, vol. 5(3), pages 319-349, June.
    11. Hélène Erkel‐Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 35(2), pages 282-306, May.
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    More about this item

    Keywords

    Gravity; Trade;

    JEL classification:

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

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