Maxim, Belenkiy (2008): Robustness of the Extensive Margin in the Helpman, Melitz and Rubinstein (HMR) Model.
Download (544kB) | Preview
The HMR model extends the classical gravity model of trade to correct for the large number of zeros in the world trade matrix (export selection) and for the unobservable fraction of exporting fi�rms (extensive margin). They �find that, while omission of both of these corrections result in the biased estimates of the gravity model, the extensive margin correction is the most signi�ficant of the two when estimating the trade flows. I test the robustness of this conclusion by splitting the world trade data into OECD and non-OECD countries. The extensive margin should be both economically and statistically more signi�ficant for the OECD exporters, while export selection should play a larger in the trade flows for the non-OECD exporters. I �find that the extensive margin is not signi�ficant for the OECD trade flows, but the export selection is important regardless of the exporter location. These �ndings call into question the conclusions of the HMR model. I posit and test possible hypothesis to explain them.
|Item Type:||MPRA Paper|
|Original Title:||Robustness of the Extensive Margin in the Helpman, Melitz and Rubinstein (HMR) Model|
|Keywords:||trade flows, trade frictions, asymmetries, gravity model, estimation|
|Subjects:||F - International Economics > F1 - Trade > F10 - General
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade
|Depositing User:||Maxim Belenkiy|
|Date Deposited:||17. Oct 2009 06:28|
|Last Modified:||12. Feb 2013 14:09|
Anderson, J. E. and Van Wincoop, E. (2004), "Trade costs", NBER Working Paper No. W10480.
Anderson, J. E. and Wincoop, E. v. (2003), "Gravity with gravitas: A solution to the border puzzle", The American Economic Review , Vol. 93, pp. 170�192.
Broda, C. and Weinstein, D. E. (2006), "Globalization and the gains from variety", Quarterly Journal of Economics , Vol. 121, pp. 541�585.
Chaney, T. (2008), "Distorted gravity: Heterogeneous �rms, market structure and the geography of international trade", American Economic Review . forthcoming.
Demidova, S. A. (2006), "Productivity improvements and falling trade costs: Boon or bane?", Working Paper.
Falvey, R., Greenaway, D. and Yu, Z. (2006), "Extending the melitz model to asymmetric coun- tries", University of Nottingham Research Paper No. 2006/07.
Glick, R. and Rose, A. K. (2002), "Does a currency union affect trade? the time-series evidence", European Economic Review , Vol. 46, pp. 1125�1151.
Helpman, E. (1987), "Imperfect competition and international trade: Evidence from fourteen in- dustrial countries", Journal of the Japanese and International Economies , Vol. 1, pp. 62�81.
Helpman, E. (1999), "The structure of foreign trade", The Journal of Economic Perspectives, Vol. 13.
Helpman, E., Melitz, M. J. and Yeaple, S. R. (2004), "Export versus fdi with heterogeneous �firms", The American Economic Review , Vol. 94.
Helpman, E., Melitz, M. and Rubinstein, Y. (2008), "Estimating trade flows: Trading partners and trading volumes", Quarterly Journal of Economics , Vol. 123, pp. 441�487.
Hummels, D. and Levinsohn, J. (1995), "Monopolistic competition and international trade: Re- considering the evidence", The Quarterly Journal of Economics , Vol. 110.
Johnson, R. C. (2007), "Trade and prices with heterogeneous �rms", Job Market Paper.
Manova, K. B. (2006), "Credit constraints, heterogeneous �rms and international trade", Working Paper.
Melitz, M. J. (2003), "The impact of trade on intra-industry reallocations and aggregate industry productivity", Econometrica , Vol. 71, pp. 1695�1725.
Rose, A. K. (2000), "One money, one market: the effect of common currencies on trade", Economic Policy , Vol. 15, pp. 7�46.
Rose, A. K. (2004), "Do we really know that the wto increases trade?", The American Economic Review , Vol. 94, pp. 98�114.
Tinbergen, J. (1962), Shaping the World Economy, New York: The Twentieth Century Fund.
Wooldridge, J. M. (2002), Econometric Analysis of Cross Section and Panel Data, Cambridge, MA: The MIT Press.