Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically

13 Pages Posted: 7 Jan 2015

See all articles by J. M.C. Santos Silva

J. M.C. Santos Silva

University of Surrey

Silvana Tenreyro

London School of Economics (LSE)

Date Written: February 2015

Abstract

Helpman, Melitz and Rubinstein [Quarterly Journal of Economics (2008) Vol. 123, pp. 441–487] (HMR) present a rich theoretical model to study the determinants of bilateral trade flows across countries. The model is then empirically implemented through a two‐stage estimation procedure. We argue that this estimation procedure is only valid under the strong distributional assumptions maintained in the article. Statistical tests using the HMR sample, however, clearly reject such assumptions. Moreover, we perform numerical experiments which show that the HMR two‐stage estimator is very sensitive to departures from the assumption of homoskedasticity. These findings cast doubts on any inference drawn from the empirical implementation of the HMR model.

Suggested Citation

Santos Silva, João M.C and Tenreyro, Silvana, Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically (February 2015). Oxford Bulletin of Economics and Statistics, Vol. 77, Issue 1, pp. 93-105, 2015, Available at SSRN: https://ssrn.com/abstract=2546104 or http://dx.doi.org/10.1111/obes.12055

João M.C Santos Silva (Contact Author)

University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom

Silvana Tenreyro

London School of Economics (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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