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Robustness of the Extensive Margin in the Helpman, Melitz and Rubinstein (HMR) Model

  • Maxim, Belenkiy

The HMR model extends the classical gravity model of trade to correct for the large number of zeros in the world trade matrix (export selection) and for the unobservable fraction of exporting fi�rms (extensive margin). They �find that, while omission of both of these corrections result in the biased estimates of the gravity model, the extensive margin correction is the most signi�ficant of the two when estimating the trade flows. I test the robustness of this conclusion by splitting the world trade data into OECD and non-OECD countries. The extensive margin should be both economically and statistically more signi�ficant for the OECD exporters, while export selection should play a larger in the trade flows for the non-OECD exporters. I �find that the extensive margin is not signi�ficant for the OECD trade flows, but the export selection is important regardless of the exporter location. These �ndings call into question the conclusions of the HMR model. I posit and test possible hypothesis to explain them.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17913.

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Date of creation: Jul 2008
Date of revision: Feb 2009
Handle: RePEc:pra:mprapa:17913
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  1. Elhanan Helpman, 1998. "The Structure of Foreign Trade," Harvard Institute of Economic Research Working Papers 1848, Harvard - Institute of Economic Research.
  2. Rose, Andrew K, 2002. "Do We Really Know that the WTO Increases Trade?," CEPR Discussion Papers 3538, C.E.P.R. Discussion Papers.
  3. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  4. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  5. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
  6. 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.
  7. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
  8. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  9. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  10. 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.
  11. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
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