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Estimating Trade Flows: Trading Partners and Trading Volumes *
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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.”
From Estimating the effects of trade agreements: Lessons from 60 years of methods and data (2024) · cites this paper as Helpman et al., 2008
In the citing paper
“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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“= (Sj − sj(āj)Nj) G(āj) ∂āj ∂Fj N2 j (18)”
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“Recent contributions include Anderson and van Wincoop (2003), Eaton and Kortum (2002), Head and Ries (2001), Helpman et al. (2008), Hummels (2007), and Jacks, Meissner, and Novy (2008). producer prices and exports is conceptually different and fully exploits the recent availability of detailed…”
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The world trade network and the environment
Aller, C., Ductor, L., & Herrerías, M. J. (2015) · Energy Economics · doi:10.1016/j.eneco.2015.09.008 · Cited by 120
“Helpman et al. (2008) and Chaney (2014) formalised this model, considering trade frictions and economic geography, respectively, arguing that traditional estimates of trade are biassed in the omission of the extensive margins of trade and asymmetric trade fl ows among countries.”
BackgroundThe cost of non-Europe, revisited*
Thierry Mayer, B., Vicard, V., & Zignago, S. (2019) · Economic Policy · doi:10.1093/epolic/eiz002 · Cited by 120
“Those zeroes are again obviously not random, and might introduce selection bias, as first emphasized by Helpman et al. (2008).”
Eicher, T. S., Henn, C., & Papageorgiou, C. (2010) · Journal of Applied Econometrics · doi:10.1002/jae.1198 · Cited by 141
“Raftery and Zheng (2003) show that BMA maximizes predictive performance while minimizing the total error rate when compared to any individual model.”
National Animosity and Cross-Border Alliances
Arikan, I. T., & Shenkar, O. (2013) · Academy of Management Journal · doi:10.5465/amj.2011.0210 · Cited by 121
A Balls-and-Bins Model of Trade
Armenter, R., & Koren, M. (2014) · American Economic Review · doi:10.1257/aer.104.7.2127 · Cited by 118
“e fraction drops to about 3% when all rms outside manufacturing are included.(17) Other studies have conrmed the scarcity of exporters.”
BackgroundPop Internationalism: Has Half a Century of World Music Trade Displaced Local Culture?
Ferreira, F. V., & Waldfogel, J. (2012) · The Economic Journal · doi:10.1111/ecoj.12003 · Cited by 116
“With those assumptions, (6) becomes: mij ¼ bo þ kj þ vi þ cdij þ hwij þ uij : ð7Þ Two important points are emphasised by Helpman et al. (2008).”
MethodInfluentialNorth-South Standards Harmonization and International Trade
Anne-célia Disdier, A., Fontagné, L., & Cadot, O. (2014) · The World Bank Economic Review · doi:10.1093/wber/lht039 · Cited by 116
“Helpman et al. (2008) also develop a two-stage estimation procedure that accounts for both the extensive (decision to export from i to j) and the intensive (volume of exports conditional on exporting) margins of trade.”
An assessment of the Europe agreements’ effects on bilateral trade, GDP, and welfare
Egger, P. H., & Larch, M. (2010) · European Economic Review · doi:10.1016/j.euroecorev.2010.05.002 · Cited by 115
The rise and fall of (Chinese) African apparel exports
Rotunno, L., Vézina, P., & Wang, Z. (2013) · Journal of Development Economics · doi:10.1016/j.jdeveco.2013.08.001 · Cited by 115
Feenstra, R. C. (2017) · Journal of International Economics · doi:10.1016/j.jinteco.2017.10.003 · Cited by 115
The Role of Extensive and Intensive Margins and Export Growth
Besedeš, T., & Prusa, T. J. (2007) · National Bureau of Economic Research · doi:10.3386/w13628 · Cited by 117
“This suggests the common assumption of a constant hazard rate is likely inappropriate.(16)”
Unpacking Sources of Comparative Advantage: A Quantitative ApproachPreprint
Chor, D. (2008) · SSRN Electronic Journal · doi:10.2139/ssrn.1289543 · Cited by 115
Product standards and developing country agricultural exports: The case of the European Union
Shepherd, B., & Wilson, N. L. W. (2013) · Food Policy · doi:10.1016/j.foodpol.2013.06.003 · Cited by 114
“(1996) and Moenius (2004) examine the trade impacts of voluntary national standards, while Chen and Mattoo (2008) and Baller (2007) focus on transnational mandatory standards (Harmonization Directives).”
BackgroundDadakas, D., Kor, S. G., & Fargher, S. (2020) · Journal of International Trade & Economic Development · doi:10.1080/09638199.2019.1710551 · Cited by 116
“Estimation methods that have been proposed in the literature to deal with the problems of zeros or heteroscedasticity have been presented by Helpman, Melitz, and Rubinstein (2008), Santos Silva and Tenreyro (2006), Rose (2004), Baldwin and DiNino (2002), Manning and Mullahy (2001) and others.”
BackgroundMethod
Metadata
- 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
- 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
- green
- nrs.harvard.edu
- 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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