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Exploring the intensive and extensive margins of world trade

Author

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  • Felbermayr, Gabriel
  • Kohler, Wilhelm K.

Abstract

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.

Suggested Citation

  • Felbermayr, Gabriel & Kohler, Wilhelm K., 2006. "Exploring the intensive and extensive margins of world trade," Munich Reprints in Economics 20610, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenar:20610
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    References listed on IDEAS

    as
    1. Alan V. Deardorff, 2014. "Local comparative advantage: Trade costs and the pattern of trade," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(1), pages 9-35, March.
    2. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078.
    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. 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.
    5. repec:rus:hseeco:123558 is not listed on IDEAS
    6. Subramanian, Arvind & Wei, Shang-Jin, 2007. "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Elsevier, vol. 72(1), pages 151-175, May.
    7. Peter Egger & Michael Pfaffermayr, 2004. "Distance, trade and FDI: a Hausman-Taylor SUR approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 227-246.
    8. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
    9. 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/Revue canadienne d'économique, John Wiley & Sons, vol. 34(2), pages 430-447, May.
    10. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2006. "Trading Partners and Trading Volumes," DEGIT Conference Papers c011_022, DEGIT, Dynamics, Economic Growth, and International Trade.
    11. 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.
    12. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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