NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Zeros, Quality and Space: Trade Theory and Trade Evidence

Richard Baldwin, James Harrigan

NBER Working Paper No. 13214
Issued in July 2007
NBER Program(s):   ITI

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.

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This paper was revised on January 5, 2010

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Document Object Identifier (DOI): 10.3386/w13214

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

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