Determinants of Trade Margins: Insights Using State Export Data

42 Pages Posted: 29 Nov 2015

See all articles by Cletus C. Coughlin

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Multiple version iconThere are 2 versions of this paper

Abstract

We adapt the heterogeneous firm trade models of Helpman, Melitz, and Rubinstein (2008) and Lawless (2010) to analyze extensive and intensive trade margins using state-level exports to foreign nations. Our theoretical analysis provides definitive predictions for the effects of changes in fixed costs, variable costs, and foreign income on the extensive margin, while for the intensive margin the predictions regarding changes in fixed costs are definitive, but the effects of changes in variable costs and foreign income are not. The number of exporting firms of a state is used to measure the extensive margin, while the intensive margin is approximated by the average firm exports of a state. Various count-data models, such as the standard negative binomial and its hurdle extension, are used to address non-trading pairs and overdispersion in the extensive trade estimations, while a Heckman correction is examined to handle sample selection issues in the intensive margin estimations.As the theory predicts, we find more consistent and statistically significant effects of changes in cost-related variables on the extensive than on the intensive margin of trade. Unlike Lawless (2010), but consistent with a truncated Pareto distribution, empirical findings suggest that variable costs reduce average exports. A noteworthy finding is that U.S. foreign direct investment has a positive effect on both margins.

Keywords: state exports, extensive margin, intensive margin, negative binomial, hurdle model, Heckman correction

JEL Classification: F10, R10

Suggested Citation

Coughlin, Cletus C. and Bandyopadhyay, Subhayu, Determinants of Trade Margins: Insights Using State Export Data. IZA Discussion Paper No. 9520. Available at SSRN: https://ssrn.com/abstract=2696358

Cletus C. Coughlin (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
11
Abstract Views
258
PlumX Metrics