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

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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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Núñez-Rocha, T., & Martínez‐Zarzoso, I. (2018) · Economic Modelling · doi:10.1016/j.econmod.2018.04.013 · Cited by 40
Drivers of domestic grain virtual water flow: A study for China
Song, J., Yin, Y., Xu, H., Wang, Y., Wu, P., & Sun, S. (2020) · Agricultural Water Management · doi:10.1016/j.agwat.2020.106175 · Cited by 40
Determinants of China’s Seafood Trade Patterns
Yang, B., Anderson, J. L., & Asche, F. (2020) · Marine Resource Economics · doi:10.1086/708617 · Cited by 40
“Determinants of China’s Seafood Trade Patterns | 105 Helpman, Melitz, and Rubinstein 2008).”
Background
Trade Flow of India with BRICS Countries: A Gravity Model Approach
Lohani, K. K. (2020) · Global Business Review · doi:10.1177/0972150920927684 · Cited by 42
Quality of institutions and the BRIC countries agro-food exports
Bojnec, Š., Fertő, I., & Fogarasi, J. (2014) · China Agricultural Economic Review · doi:10.1108/caer-02-2013-0034 · Cited by 40
Gravity and Extended Gravity: Using Moment Inequalities to Estimate a Model of Export Entry
Morales, E., Sheu, G., & Zahler, A. (2014) · National Bureau of Economic Research · doi:10.3386/w19916 · Cited by 40
Pakistan’s potential export flow: The gravity model approach
Abbas, S., & Waheed, A. (2015) · The Journal of Developing Areas · doi:10.1353/jda.2015.0135 · Cited by 39
Geographical indication regulation and intra‐trade in the European Union
Sorgho, Z., & Larue, B. (2014) · Agricultural Economics · doi:10.1111/agec.12125 · Cited by 39
Structure and growth of weighted networks
Riccaboni, M., & Schiavo, S. (2010) · New Journal of Physics · doi:10.1088/1367-2630/12/2/023003 · Cited by 39
“Although this has recently been addressed in the context of standard economic theory [19], graph theory has been applied to accommodate this feature of the data naturally.”
The influence of formal trade agreements and informal economic cooperation on international tourism flows
Saayman, A., Figini, P., & Cassella, S. (2016) · Tourism Economics · doi:10.1177/1354816616672600 · Cited by 39
“Helpman et al. (2008) applied the Heckman model to international trade using a gravity equation, where the response equation follows the normal gravity specification (i.e. equation (2)), while the selection equation (equation (4)) estimates the probability that a data point is included in the…”
Method
How do firms respond to political tensions? The heterogeneity of the Dalai Lama Effect on trade
Lin, F., Hu, C., & Fuchs, A. (2018) · China Economic Review · doi:10.1016/j.chieco.2018.10.009 · Cited by 39
“First, we relate to the literature on firm heterogeneity and trade (e.g., Bernard et al. 1995 Bernard and Jensen 1999; Melitz 2003; Chaney 2008; Helpman et al. 2008; Lawless 2010).”
The indirect effects of foreign direct investment on trade: A network perspective
Metulini, R., Riccaboni, M., Sgrignoli, P., & Zhu, Z. (2017) · World Economy · doi:10.1111/twec.12504 · Cited by 39
“In particular Helpman et al. (2008) provide a theoretical framework jointly determining both the set of trading partners and their trade volumes, using the H2S selection model (Heckman, 1979).”
Corruption and international trade: a comprehensive analysis with gravity
Gil‐Pareja, S., Llorca‐Vivero, R., & Martínez‐Serrano, J. A. (2019) · Applied Economic Analysis · doi:10.1108/aea-06-2019-0003 · Cited by 39
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Umulisa, Y. (2020) · African Development Review · doi:10.1111/1467-8268.12414 · Cited by 43
“Early studies, such as those by Mundell (1961), McKinnon (1963), and Ishiyama (1975), present the criteria that are relevant for a successful monetary union and can be summarized under four points: (a) trade integration; (b) symmetry of shocks; (c) mobility (in both labor and capital markets); and (d) risk‐sharing mec…”
Background
Air cargo transport in APEC: Regulation and effects on merchandise trade
Grosso, M. G., & Shepherd, B. (2011) · Journal of Asian Economics · doi:10.1016/j.asieco.2011.02.004 · Cited by 39
Decomposing firm-level sales variation
Munch, J. R., & Nguyen, D. X. (2014) · Journal of Economic Behavior & Organization · doi:10.1016/j.jebo.2014.06.012 · Cited by 39
“These normality assumptions are supported by the distribution of domestic revenues of Danish (cid:133)rms presented in Figure 3 and is consistent with previous studies of (cid:133)rm size distribution (Cabral and Mata, 2003) and export selection (Helpman, Melitz, Rubinstein, 2008).”
Result
The Local Structure of Globalization
Koskinen, J. H., & Lomi, A. (2013) · Journal of Statistical Physics · doi:10.1007/s10955-013-0732-x · Cited by 39
“Unlike the majority of studies on International Trade Networks (ITN) we are not interested in predicting the aggregate (non-zero) flows of capital between countries [13, 31, 41].”
Background
Exports, Productivity, and Credit Constraints: A Firm-Level Empirical Investigation of ChinaPreprint
Li, Z., & Yu, M. (2009) · SSRN Electronic Journal · doi:10.2139/ssrn.1461399 · Cited by 40
“Recent works like those by Santos Silva and Tenreyro (2006), Helpman et al. (2007), and Yu (2009) have argued that OLS estimates can lead to serious biases due to zero trade volume.”
National scientific capacity and R&D offshoring
Thomson, R. K. (2012) · Research Policy · doi:10.1016/j.respol.2012.07.003 · Cited by 37
Standard Harmonization as Chasing Zero (Tolerance Limits): The Impact of Veterinary Drug Residue Standards on Crustacean Imports in the EU, Japan, and North America
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The trade margins of Chinese agricultural exports to ASEAN and their determinants
Sun, Z., & Li, X. (2018) · Journal of Integrative Agriculture · doi:10.1016/s2095-3119(18)62084-2 · Cited by 38
Market potential and the rise of US productivity leadership
Liu, D., & Meissner, C. M. (2014) · Journal of International Economics · doi:10.1016/j.jinteco.2014.11.012 · Cited by 38
Fire-sale FDI or business as usual?
Alquist, R., Mukherjee, R., & Tesar, L. L. (2015) · Journal of International Economics · doi:10.1016/j.jinteco.2015.09.003 · Cited by 38
Free Trade Agreements, Institutions and the Exports of Eastern Partnership Countries
Gylfason, Þ., Martínez‐Zarzoso, I., & Wijkman, P. M. (2015) · JCMS Journal of Common Market Studies · doi:10.1111/jcms.12275 · Cited by 38

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: 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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