Working Paper: CEPR ID: DP6368
Authors: Richard Baldwin; James Harrigan
Abstract: Bilateral, product-level data exhibit a number of strong patterns that can be used to evaluate international trade theories, notably the spatial incidence of "export zeros" (correlated with distance and importer size), and of export unit values (positively related to distance). We show that leading theoretical trade models fail to explain at least some of these facts, and propose a variant of the Melitz model that can account for all the facts. In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms? heterogeneous cost.
Keywords: heterogeneous-firm trade models; QHFT model; quality and trade; testing trade theories
JEL Codes: F0; F11; F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Distance (R12) | Probability of Exporting (F10) |
| Importer Size (F10) | Probability of Exporting (F10) |
| Distance (R12) | Export Unit Values (Y10) |
| Export Unit Values (Y10) | Quality of Goods (L15) |
| Distance (R12) | Probability of Export Zeros (F14) |
| Distance (R12) | Pricing of Exported Goods (F14) |
| Existing Trade Models (F11) | Spatial Patterns of Trade Prices (F16) |