The Margins of Trade

47 Pages Posted: 2 Aug 2019

See all articles by Jonathan Eaton

Jonathan Eaton

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Ana Cecília Fieler

Yale University

Date Written: July 2019

Abstract

We introduce quality differentiation and an extensive margin of products into a standard quantitative, general equilibrium model of international trade. Both the quality and the quantity of a product play a role in its contribution both to consumption and to production. The framework allows bilateral trade to vary at the extensive and intensive margins and the intensive margin of trade to vary at the quantity and unit-value margins. We estimate the parameters of the model using bilateral data on trade flows and on unit values in trade. The model captures (i) the well-documented increasing relation between unit values and both importer and exporter per capita income and (ii) how the extensive margin rises with importer and exporter size. But, unlike other contributions to the literature confronting these margins in international trade, our framework delivers a standard gravity formulation for trade flows and standard measures of the gains from trade apply.

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Suggested Citation

Eaton, Jonathan and Fieler, Ana Cecília, The Margins of Trade (July 2019). NBER Working Paper No. w26124, Available at SSRN: https://ssrn.com/abstract=3428176

Jonathan Eaton (Contact Author)

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

608 Kern Graduate Building
University Park, PA 16802-3306
United States
814-865-8871 (Phone)

Ana Cecília Fieler

Yale University

New Haven, CT 06520
United States

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