The Intensive Margin in Trade: How Big and How Important?
American Economic Journal: Macroeconomics
vol. 15,
no. 3, July 2023
(pp. 320-54)
Abstract
In benchmark trade models that feature a constant trade elasticity, bilateral exports vary entirely on the intensive margin (exports per firm) or entirely on the extensive margin (number of firms). Our empirical analysis documents that roughly one-half of this variation occurs along each margin, implying that the trade elasticity is not constant. We estimate a generalized Melitz model with a joint log-normal distribution for firm productivity, fixed costs, and demand shifters. Using exact-hat algebra, we quantify how trade costs affect trade flows and welfare. Welfare effects are similar to those in the Melitz-Pareto model, but implied trade flows differ significantly.Citation
Fernandes, Ana M., Peter J. Klenow, Sergii Meleshchuk, Martha Denisse Pierola, and Andrés Rodríguez-Clare. 2023. "The Intensive Margin in Trade: How Big and How Important?" American Economic Journal: Macroeconomics, 15 (3): 320-54. DOI: 10.1257/mac.20200269Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- F12 Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 Empirical Studies of Trade
- L13 Oligopoly and Other Imperfect Markets
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