Zeros, quality and space
Subtitle: trade theory and trade evidence
By: Richard Baldwin, James Harrigan.
Contributors: Harrigan, James.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13214.; Working paper series (National Bureau of Economic Research) -- working paper no. 13214.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 34
Subjects: Exports -- United States -- Mathematical models
Description: Product-level data on bilateral U.S. exports exhibit two strong patterns. First, most potential export flows are not present, and the incidence of these "export zeros" is strongly correlated with distance and importing country size. Second, export unit values are positively related to distance. We show that every well-known multi-good general equilibrium trade model is inconsistent with at least some of these facts. We also offer direct statistical evidence of the importance of trade costs in explaining zeros, using the long-term decline in the relative cost of air shipment to identify a difference-in-differences estimator. To match these facts, we propose a new version of the heterogeneous-firms trade model pioneered by Melitz (2003). In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms' heterogeneous cost.
Notes: "July 2007"

Includes bibliographical references (p. 26-27).

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