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American Economic Journal: Microeconomics: Vol. 3 No. 2 (May 2011)

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Zeros, Quality, and Space: Trade Theory and Trade Evidence

Article Citation

Baldwin, Richard, and James Harrigan. 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence." American Economic Journal: Microeconomics, 3(2): 60-88.

DOI: 10.1257/mic.3.2.60

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. (JEL F11, F14, F40)

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Authors

Baldwin, Richard (Graduate Institute, Geneva)
Harrigan, James (U VA)

JEL Classifications

F11: Neoclassical Models of Trade
F14: Country and Industry Studies of Trade
F40: Macroeconomic Aspects of International Trade and Finance: General

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