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Zeros, Quality and Space: Trade Theory and Trade Evidence

61 Pages Posted: 3 Jul 2007 Last revised: 11 Aug 2010

Richard E. Baldwin

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

James Harrigan

University of Virginia - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: July 2007

Abstract

Bilateral, product-level data exhibit a number of strong patterns that can be used to evaluate international trade theories, notably the spatial incidence of "export zeros" (correlated with distance and importer size), and of export unit values (positively related to distance). We show that leading theoretical trade models fail to explain at least some of these facts, and propose a variant of the Melitz model that can account for all the facts. In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms' heterogeneous cost.

Suggested Citation

Baldwin, Richard E. and Harrigan, James, Zeros, Quality and Space: Trade Theory and Trade Evidence (July 2007). NBER Working Paper No. w13214. Available at SSRN: https://ssrn.com/abstract=997999

Richard E. Baldwin

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland
+41 22 908 5933 (Phone)
+41 22 733 3049 (Fax)

HOME PAGE: http://www.hei.unige.ch/~baldwin/

Centre for Economic Policy Research (CEPR)

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London, EC1V 3PZ
United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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James Harrigan (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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