Publications
- Estimating Trade Flows: Trading Partners and Trading Volumes
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- by Helpman, Elhanan; Melitz, Marc; Rubinstein, Yona
- We develop a simple model of international trade with heterogeneous
firms that is consistent
with a number of stylized features of the data. In particular, the model predicts positive as well
as zero trade flows across pairs of countries, and it allows the number of exporting fi
rms to vary
across destination countries. As a result, the impact of trade frictions on trade flows can be
decomposed into the intensive and extensive margins, where the former refers to the trade volume
per exporter and the latter refers to the number of exporters. This model yields a generalized
gravity equation that accounts for the self-selection of
firms into export markets and their impact
on trade volumes. We then develop a two-stage estimation procedure that uses a selection
equation into trade partners in the fi
rst stage and a trade ow equation in the second. We
implement this procedure parametrically, semi-parametrically, and non-parametrically, showing
that in all three cases the estimated effects of trade frictions are similar. Importantly, our method
provides estimates of the intensive and extensive margins of trade. We show that traditional
estimates are biased, and that most of the bias is not due to selection but rather due to the
omission of the extensive margin. Moreover, the effect of the number of exporting fi
rms varies
across country pairs according to their characteristics. This variation is large, and particularly
so for trade between developed and less developed countries and between pairs of less developed
countries.
- Publication Type: WCFIA Working Paper
- Published Date: September 2007
- Field of Interest: International Economics
- Helpman, Elhanan, Marc Melitz, and Yona Rubinstein. "Estimating Trade Flows: Trading Partners and Trading Volumes." Working Paper 2008-0049, Weatherhead Center for International Affairs, Harvard University, September 2007.
