Working Paper: NBER ID: w13214
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: International Trade; Export Zeros; Melitz Model; Trade Theory
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| distance (R12) | export probability (F10) |
| importer size (F10) | export probability (F10) |
| distance (R12) | export zeros (Y10) |
| distance (R12) | export unit values (Y10) |
| market size (L25) | export prices (F14) |
| high-quality firms (L15) | navigating trade costs (F12) |