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Agglomeration Matters for Trade

  • Enrique Moral-Benito

    (Bank of Spain)

We use a unique administrative dataset of Spanish exporters to document the existence of exporters' geographical agglomeration by export-destination. We reveal that firms selling to countries with worse business regulations, dissimilar language and different currency tend to cluster signicantly more. We then assess the implications of exporters' geographical agglomeration for firms' behaviour and for the estimated welfare gains from trade. On the one hand, we find that exporters engage in more stable trade relationships with those countries that are the export-destinations of nearby firms. On the other, we introduce agglomeration in a model of international trade a la Melitz (2003). Using our Spanish firm-level data, we find that relative to a model without agglomeration, accounting for this phenomenon increases by 44% the elasticity of welfare with respect to fixed trade-costs.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 85.

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Date of creation: 2013
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Handle: RePEc:red:sed013:85
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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