Estimating the Extensive Margin of Trade

23 Pages Posted: 27 Aug 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)

Kehai Wei

University of Essex

Date Written: August 2015


Understanding and quantifying the determinants of the number of sectors or firms exporting in a given country is of relevance for the assessment of trade policies. Estimation of models for the number of sectors, however, poses a challenge because the dependent variable has both a lower and an upper bound, implying that the partial effects of the explanatory variables on the conditional mean of the dependent variable cannot be constant and must approach zero as the conditional mean approaches its bounds. We argue that ignoring these bounds can lead to erroneous conclusions due to the model's mispecification, and propose a flexible specification that accounts for the doubly-bounded nature of the dependent variable. We empirically investigate the problem and the proposed solution, finding significant differences between estimates obtained with the proposed estimator and those obtained with standard approaches.

Keywords: bounded data, extensive margin of trade, number of sectors

JEL Classification: C13, C25, F11, F14

Suggested Citation

Santos Silva, João M.C and Tenreyro, Silvana and Wei, Kehai, Estimating the Extensive Margin of Trade (August 2015). CEPR Discussion Paper No. DP10787, Available at SSRN:

João M.C Santos Silva (Contact Author)

University of Surrey ( email )

Surrey GU2 7XH
United Kingdom

Silvana Tenreyro

London School of Economics (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Kehai Wei

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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