Deconstructing Gravity: Trade Costs and Extensive and Intensive Margins

24 Pages Posted: 19 Oct 2010

See all articles by Martina Lawless

Martina Lawless

Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department

Abstract

This paper uses data on US exports to decompose exports into the number of exporting firms (the extensive margin) and average export sales (the intensive margin). We show how a range of proxies for trade costs has different impacts on the two margins. Distance has a negative effect on both margins, but the magnitude is considerably larger for the extensive margin. Most of the variables capturing language, internal geography, infrastructure and import cost barriers work through the extensive margin. We show that these results are consistent with a Melitz-style model of trade with heterogeneous firm productivity and fixed costs.

Ce mémoire utilise des données sur les exportations des États-Unis et en décompose l’évolution entre ce qui est attribuable au nombre des firmes exportatrices (la marge extensive) et les ventes moyennes à l’exportation (la marge intensive). On montre comment une variété d’indicateurs des coûts du commerce impacte différemment les deux marges. La distance a un effet négatif sur les deux marges, mais la taille de l’impact est considérablement plus importante sur la marge extensive. La plupart des variables comme la langue, la géographie interne, les infrastructures, et les barrières de coûts à l’importation opèrent via la marge extensive. Ces résultats sont consistants avec un modèle de commerce de type Melitz avec hétérogénéité des entreprises pour ce qui est de la productivité et des coûts fixes.

Suggested Citation

Lawless, Martina, Deconstructing Gravity: Trade Costs and Extensive and Intensive Margins. Canadian Journal of Economics/Revue canadienne d'économique, Vol. 43, No. 4, pp. 1149-1172, November/novembre 2010, Available at SSRN: https://ssrn.com/abstract=1694228 or http://dx.doi.org/10.1111/j.1540-5982.2010.01609.x

Martina Lawless (Contact Author)

Central Bank and Financial Services Authority of Ireland - Economic Analysis and Research Department ( email )

Dame Street
P.O. Box 559
Dublin 2
Ireland

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