The Evolution of International Trade on the Extensive and Intensive Margins

This paper seeks to identify the relation between a country's trade share and its income level. We ask whether this relation changed between 1995 and 2005 and whether there has been an observable shift toward increased trade variety for high income countries. In order to address these questions, we employ a trade decomposition method that consists of dividing the overall trade share of a given country into the extensive and intensive margins and the latter is further decomposed into price and quantity components. A country's relative income has a smaller effect on trade share vis-a-vis the EU 15 than was previously the case, primarily because relatively low income countries now export large quantities of goods also.