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Cited by 2,436Global trade and economicsEconomic and Technological InnovationGlobal Trade and Competitiveness

Estimating Trade Flows: Trading Partners and Trading Volumes *

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Helpman, Elhanan, Melitz, Marc, Rubinstein, Yona·2008·Quarterly Journal of Economics
DOI 10.1162/qjec.2008.123.2.441
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Abstract

We develop a simple model of international trade with heterogeneous firms that is consistent with a number of stylized features of the data. In particular, the model predicts positive as well as zero trade flows across pairs of countries, and it allows the number of exporting firms to vary across destination countries. As a result, the impact of trade frictions on trade flows can be decomposed into the intensive and extensive margins, where the former refers to the trade volume per exporter and the latter refers to the number of exporters. This model yields a generalized gravity equation that accounts for the self-selection of firms into export markets and their impact on trade volumes. We then develop a two-stage estimation procedure that uses an equation for selection into trade partners in the first stage and a trade flow equation in the second. We implement this procedure parametrically, semiparametrically, and nonparametrically, showing that in all three cases the estimated effects of trade frictions are similar. Importantly, our method provides estimates of the intensive and extensive margins of trade. We show that traditional estimates are biased and that most of the bias is due not to selection but rather due to the omission of the extensive margin. Moreover, the effect of the number of exporting firms varies across country pairs according to their characteristics. This variation is large and particularly so for trade between developed and less developed countries and between pairs of less developed countries.

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  • Endogeneity has been a major obstacle in gravity models.

    “Endogeneity has been a major obstacle in gravity models.”

    From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Helpman et al., 2008

  • The profession has struggled to address endogeneity using standard techniques (e.g., IV treatment) because what determines the probability to sign a trade agreement also affects the volume of trade flows.

    “the profession has struggled to address this issue using standard techniques (e.g., instrumental variable (IV) treatment) due to the fact that very often what determines the probability to sign a trade agreement also affects the volume of trade flows (Egger et al., 2008;Egger et al., 2011;Helpman et al., 2008;Jochmans & Verardi, 2022).”

    From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Helpman et al., 2008

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Authors
Helpman, E., Melitz, M., & Rubinstein, Y.
Affiliations
  • Canadian Institute for Advanced Research (CA)
  • National Bureau of Economic Research (US)
Venue
Quarterly Journal of Economics
Publisher
Oxford University Press (OUP)
Published
2008-05
Volume
123
Issue
2
Pages
441-487
ISSN
  • 0033-5533 (ISSN-L)
  • 1531-4650
DOI
10.1162/qjec.2008.123.2.441
OpenAlex
W3122837923
Cited by
2,436
References
41
Citations by year
2026: 99 · 2025: 93 · 2024: 104 · 2023: 91 · 2022: 111 · 2021: 115 · 2020: 114 · 2019: 105 · 2018: 126 · 2017: 132 · 2016: 157 · 2015: 200 · 2014: 204 · 2013: 196 · 2012: 174
FWCI
286.17
Type
journal article
Language
en
Open access
Licence
cc-by
Locations
  • The Quarterly Journal of Economics (publishedVersion)
  • Digital Access to Scholarship at Harvard (DASH) (Harvard University) (submittedVersion, cc-by)
  • RePEc: Research Papers in Economics (submittedVersion)
  • London School of Economics and Political Science Theses Online (London School of Economics and Political Science) (submittedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Global trade and economics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic and Technological Innovation
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Global Trade and Competitiveness
Keywords
international trade, trade flows, gravity model, trade friction, heterogeneous firms, intensive margin, extensive margin, exporters, two-stage estimation, selection bias, developed and developing countries

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