Exploring the Intensive and Extensive Margins of World Trade
45 Pages Posted: 18 Oct 2004
Date Written: September 2004
Abstract
World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post-World-War-II growth in manufacturing world trade along these two margins. We propose a "cornersolutions-version" of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called "distance-puzzle". It also finds more convincing evidence than recent literature that WTO-membership enhances trade.
Keywords: F12, F15
JEL Classification: bilateral trade, globalization, gravity model
Suggested Citation: Suggested Citation
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