The predominance of the number of exporters in accounting for the negative effect of distance and of bilateral tariffs on bilateral trade is maintained in Panel B.

# **Table 9: Gravity Equation Estimates**

|**Panel A. Including Export**|**er and Import**<br>|**er GDP**<br>|**Ln Mean**<br>**Dependent**|<br>**Variable is:**||**Ln Mean**|||**Ln Mean**|
|---|---|---|---|---|---|---|---|---|---|
||**Ln Total**|**Ln Number of**||**Ln Total**|**Ln Number of**||**Ln Total**|**Ln Number of**||
||<br>**Exports**<br>**_Bilateral_**|<br>**Exporters**<br>**_Bilateral_**|**Exports per**<br>**Firm**<br>**_Bilateral_**|<br>**Exports**<br>**_Bilateral_**|<br>**Exporters**<br>**_Bilateral_**|**Exports per**<br>**Firm**<br>**_Bilateral_**|<br>**Exports**<br>**_Bilateral_**|<br>**Exporters**<br>**_Bilateral_**|**Exports per**<br>**Firm**<br>**_Bilateral_**|
||**(1)**|**(2)**|**(3)**|**(4)**|**(5)**|**(6)**|**(7)**|**(8)**|**(9)**|
|**Ln GDP of exporter**|1.169***|0.855***|0.314***|1.039***|0.763***|0.277***|1.203***|0.887***|0.316***|
||(0.027)|(0.016)|(0.019)|(0.031)|(0.019)|(0.019)|(0.026)|(0.014)|(0.019)|
|**Ln GDP of destination**|0.845***|0.498***|0.347***|0.731***|0.410***|0.321***|0.841***|0.494***|0.347***|
||(0.019)|(0.011)|(0.012)|(0.021)|(0.013)|(0.013)|(0.018)|(0.010)|(0.012)|
|**Ln bilateral distance**|-1.616***|-1.223***|-0.393***||||-1.634***|-1.240***|-0.394***|
||(0.046)|(0.028)|(0.028)||||(0.045)|(0.027)|(0.028)|
|**Ln bilateral tariffs**||||-1.196***|-1.118***|-0.078|-1.252***|-1.160***|-0.0915*|
|||||(0.084)|(0.053)|(0.051)|(0.076)|(0.047)|(0.049)|
|**Observations**|2780|2780|2780|2780|2780|2780|2780|2780|2780|
|**R-squared**|0.553|0.615|0.251|0.426|0.469|0.212|0.594|0.698|0.252|
|**Panel B. Including Export**|**er and Import**|**er Fixed Effects**|**L M**<br>**Dependent**|**Variable is:**||**L M**|||**L M**|
||**Ln Total**<br>**Exports**<br>**_Bilateral_**|**Ln Number of**<br>**Exporters**<br>**_Bilateral_**|**n ean**<br>**Exports per**<br>**Firm**<br>**_Bilateral_**|**Ln Total**<br>**Exports**<br>**_Bilateral_**|**Ln Number of**<br>**Exporters**<br>**_Bilateral_**|**n ean**<br>**Exports per**<br>**Firm**<br>**_Bilateral_**|**Ln Total**<br>**Exports**<br>**_Bilateral_**|**Ln Number of**<br>**Exporters**<br>**_Bilateral_**|**n ean**<br>**Exports per**<br>**Firm**<br>**_Bilateral_**|
||**(1)**|**(2)**|**(3)**|**(4)**|**(5)**|**(6)**|**(7)**|**(8)**|**(9)**|
|**Ln bilateral distance**|-2.118***|-1.535***|-0.582***||||-2.052***|-1.487***|-0.565***|
||(0.052)|(0.034)|(0.032)||||(0.053)|(0.035)|(0.033)|
|**Ln bilateral tariffs**||||-3.395***|-2.470***|-0.925***|-1.134***|-0.831***|-0.302***|
|||||(0.776)|(0.559)|(0.234)|(0.260)|(0.184)|(0.117)|
|**Exporter fixed effects**|Yes|Yes|Yes|Yes|Yes|Yes|Yes|Yes|Yes|
|**Importer fixed effects**|Yes|Yes|Yes|Yes|Yes|Yes|Yes|Yes|Yes|
|**Observations**|2980|2980|2980|2980|2980|2980|2980|2980|2980|
|**R-squared**|0.742|0.834|0.439|0.585|0.637|0.393|0.744|0.837|0.44|

Notes: Robust standard errors in parentheses; *** and * indicate significance at the 1 and 10 percent percent confidence levels, respectively. The dependent variables used in the regressions are measures in the country-year-destination level dataset (file CYD.dta) in the year 2008 for each country. The real GDP variable used is in PPP terms.

Our evidence that significantly more exporters serve larger destination markets is consistent with trade models with heterogeneous firms. These models show that as the size of the export market increases, firms with lower productivity are able to generate sufficient variable profits to cover the fixed costs of exporting and thus the number of exporting firms increases (Bernard, Redding, and Schott, 2011). Distance is typically used in gravity equations to proxy for 36