Table 1. Barriers to Trade: Cross-section results (124 countries, 1970-2006)

|Methods|OLS|OLS|ET- Tobit|PPML|OLS|OLS|ET- Tobit|PPML|
|---|---|---|---|---|---|---|---|---|
|dependent var.|ln(M)|ln(1+M)|ln(a+M)|M|ln(M)|ln(1+M)|ln(a+M)|M|
||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|
|||**1**|**970**|||**20**|**05**||
|lnDij|-1.066***|-1.115***|-1.231***|-0.668***|-1.429***|-1.336***|-1.325***|-0.710***|
||_(0.0352)_|_(0.034)_|_(0.034)_|_(0.000)_|_(0.0303)_|_(0.038)_|_(0.029)_|_(0.000)_|
|Common Border|0.898***|0.326*|0.244*|0.367***|0.821***|0.613***|0.584***|0.555***|
||_(0.142)_|_(0.178)_|_(0.132)_|_(0.000)_|_(0.146)_|_(0.188)_|_(0.115)_|_(0.000)_|
|Common Language|0.702***|1.001***|1.201***|0.328***|0.967***|1.112***|0.967***|0.203***|
||_(0.0638)_|_(0.058)_|_(0.063)_|_(0.000)_|_(0.0585)_|_(0.064)_|_(0.053)_|_(0.000)_|
|Colonial links|1.315***|1.401***|1.329***|0.589***|0.639***|0.663***|0.695***|0.00188***|
||_(0.114)_|_(0.134)_|_(0.161)_|_(0.000)_|_(0.109)_|_(0.142)_|_(0.141)_|_(0.000)_|
|Nber Obs.|10,403|15,252|15,252|15,252|13,384|15,252|15,252|15,252|
|% of zero Trade flows|0%|32%|32%|32%|0%|12%|12%|12%|
|R2 orpseudo-R2|0.698|0.745|0.743|0.877|0.799|0.817|0.910|0.905|

Standard errors in parentheses, *** p<0.01, ** p<0.05, * p<0.1. Fixed country effects are not reported. _Source: authors’ calculations_ Several patterns stand out in table 1. First, as expected, the dummies have the usual signs and usual significance levels. There are some changes in the coefficient values over the sample period reflecting expectations from a globalizing world. The value of the common language coefficient falls drastically through time: based on columns (4) and (8) (the PPML estimation), sharing a common language increases trade by 39% in 197074 but only by 22% in 2005-06. Colonial links also become far less important quantitatively over the period, increasing trade by around 80% in 1970-74 but only 0.2% in 2005-06. However, we also observe a clear and significant increasing impact of distance on trade, coupled with an increasing importance of sharing a common border in the 3 last specifications. Both confirm the regionalization of trade emphasized earlier.

followed by a trade flow equation in the second stage (identifying the intensive margin). Helpman, Melitz and Rubinstein (2008) use “regulation costs of firm entry” as identification variable for their 1986 cross-section regression. However, yearly (or fiveyear average data) necessary for a credible identification strategy, are not available. Another possibility is to achieve identification by functional form assumptions (nonlinearity of the selection equation), using exactly the same set of regressors in the selection and the outcome equations (see e.g. Deb and Trivedi, 2006, for an application of this method in panel). However, in our case, the identification strategy is not sufficient as the outcome equation (the gravity estimation on positive trade flows controlling for the “mills” ratio) gives very similar results to those in OLS on ln(M), with an increase in the (absolute value of the) distance coefficient of around +30% at the intensive margin during the period. Note that in the first stage probit (extensive margin), the impact of distance on the probability to trade is decreasing (in absolute value) over time.

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