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Modelling the Extensive Margin of World Trade

2011
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Release : 2011
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Book Synopsis Modelling the Extensive Margin of World Trade by : Gabriel J. Felbermayr

Download or read book Modelling the Extensive Margin of World Trade written by Gabriel J. Felbermayr. This book was released on 2011. Available in PDF, EPUB and Kindle. Book excerpt: Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature to identify open issues. We then develop a simple extension of the gravity model that gives rise to an extensive country margin of trade separating positive trade from zero trade country pairs. The model is used to identify WTO membership effects at both the intensive and the extensive margins. Empirical estimation of this model, based on Poisson pseudo-maximum likelihood methods with exporter and importer fixed effects, allows us to readdress the empirical issue of whether GATT/WTO membership does or does not promote trade. We find that GATT membership was successful on the extensive margin of world trade but not on the intensive margin. For the recent WTO episode (1995-2008), we find consistent and robust evidence for a substantial trade-creating role of membership which is driven primarily by the intensive margin. WTO membership results in higher bilateral trade of about 40 per cent.

The Intensive Margin in Trade

2018-12-07 Business & Economics
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Release : 2018-12-07
Genre : Business & Economics
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Book Rating : 175/5 ( reviews)

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Book Synopsis The Intensive Margin in Trade by : Ana Fernandes

Download or read book The Intensive Margin in Trade written by Ana Fernandes. This book was released on 2018-12-07. Available in PDF, EPUB and Kindle. Book excerpt: The Melitz model highlights the importance of the extensive margin (the number of firms exporting) for trade flows. Using the World Bank’s Exporter Dynamics Database (EDD) featuring firm-level exports from 50 countries, we find that around 50 percent of variation in exports is along the extensive margin—a quantitative victory for the Melitz framework. The remaining 50 percent on the intensive margin (exports per exporting firm) contradicts a special case of Melitz with Pareto-distributed firm productivity, which has become a tractable benchmark. This benchmark model predicts that, conditional on the fixed costs of exporting, all variation in exports across trading partners should occur on the extensive margin. We find that moving from a Pareto to a lognormal distribution allows the Melitz model to match the role of the intensive margin in the EDD. We use likelihood methods and the EDD to estimate a generalized Melitz model with a joint lognormal distribution for firm-level productivity, fixed costs and demand shifters, and use “exact hat algebra” to quantify the effects of a decline in trade costs on trade flows and welfare in the estimated model. The welfare effects turn out to be quite close to those in the standard Melitz-Pareto model when we choose the Pareto shape parameter to fit the average trade elasticity implied by our estimated Melitz-lognormal model, although there are significant differences regarding the effects on trade flows.

The Intensive Margin in Trade

2018
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Release : 2018
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Book Synopsis The Intensive Margin in Trade by : Ana Margarida Fernandes

Download or read book The Intensive Margin in Trade written by Ana Margarida Fernandes. This book was released on 2018. Available in PDF, EPUB and Kindle. Book excerpt: The Melitz model highlights the importance of the extensive margin (the number of firms exporting) for trade flows. Using the World Bank's Exporter Dynamics Database (EDD) featuring firm-level exports from 50 countries, we find that around 50% of variation in exports is along the extensive margin -- a quantitative victory for the Melitz framework. The remaining 50% on the intensive margin (exports per exporting firm) contradicts a special case of Melitz with Pareto-distributed firm productivity, which has become a tractable benchmark. This benchmark model predicts that, conditional on the fixed costs of exporting, all variation in exports across trading partners should occur on the extensive margin. We find that moving from a Pareto to a lognormal distribution allows the Melitz model to match the role of the intensive margin in the EDD. We use likelihood methods and the EDD to estimate a generalized Melitz model with a joint lognormal distribution for firm-level productivity, fixed costs and demand shifters, and use "exact hat algebra" to quantify the effects of a decline in trade costs on trade flows and welfare in the estimated model. The welfare effects turn out to be quite close to those in the standard Melitz-Pareto model when we choose the Pareto shape parameter to fit the average trade elasticity implied by our estimated Melitz-lognormal model, although there are significant differences regarding the effects on trade flows.

Exploring the Intensive and Extensive Margins of World Trade

2004
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Release : 2004
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Book Synopsis Exploring the Intensive and Extensive Margins of World Trade by : Gabriel J. Felbermayr

Download or read book Exploring the Intensive and Extensive Margins of World Trade written by Gabriel J. Felbermayr. This book was released on 2004. Available in PDF, EPUB and Kindle. Book excerpt: World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post-World-War-II growth in manufacturing world trade along these two margins. We propose a corner-solutions-versionʺ of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called distance-puzzleʺ. It also finds more convincing evidence than recent literature that WTO-membership enhances trade.

The Intensive Margin in Trade

2018 Exports
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Release : 2018
Genre : Exports
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Book Synopsis The Intensive Margin in Trade by : Ana Margarida Fernandes

Download or read book The Intensive Margin in Trade written by Ana Margarida Fernandes. This book was released on 2018. Available in PDF, EPUB and Kindle. Book excerpt: The Melitz model highlights the importance of the extensive margin (the number of firms exporting) for trade flows. Using the World Bank's Exporter Dynamics Database (EDD) featuring firm-level exports from 50 countries, we find that around 50% of variation in exports is along the extensive margin -- a quantitative victory for the Melitz framework. The remaining 50% on the intensive margin (exports per exporting firm) contradicts a special case of Melitz with Pareto-distributed firm productivity, which has become a tractable benchmark. This benchmark model predicts that, conditional on the fixed costs of exporting, all variation in exports across trading partners should occur on the extensive margin. We find that moving from a Pareto to a lognormal distribution allows the Melitz model to match the role of the intensive margin in the EDD. We use likelihood methods and the EDD to estimate a generalized Melitz model with a joint lognormal distribution for firm-level productivity, fixed costs and demand shifters, and use "exact hat algebra" to quantify the effects of a decline in trade costs on trade flows and welfare in the estimated model. The welfare effects turn out to be quite close to those in the standard Melitz-Pareto model when we choose the Pareto shape parameter to fit the average trade elasticity implied by our estimated Melitz-lognormal model, although there are significant differences regarding the effects on trade flows.

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