Trade Flows, Multilateral Resistance and Firm Heterogeneity
We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selection into trade, while accommodating asymmetries in trade flows. A new equation for the proportion of exporting firms takes a gravity form: the extensive margin is also affected by multilateral resistance. If all countries reduce their trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in many cases. This is despite the larger trade elastictiies implied by firm heterogeneity. For isolated bilateral changes in trade frictions, multilateral resistance effects are small for most countries, but are large when big importers are involved.
|Date of creation:||01 Jul 2009|
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