Product-level data on bilateral U.S. exports exhibit two strong patterns. First, most potential export flows are not present, and the incidence of these "export zeros" is strongly correlated with distance and importing country size. Second, export unit values are positively related to distance. We show that every well-known multi-good general equilibrium trade model is inconsistent with at least some of these facts. We also offer direct statistical evidence of the importance of trade costs in explaining zeros, using the long-term decline in the relative cost of air shipment to identify a difference-in-differences estimator. To match these facts, we propose a new version of the heterogeneous-firms trade model pioneered by Melitz (2003). In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms’ heterogeneous cost.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
6368.
Find related papers by JEL classification: F0 - International Economics - - General F11 - International Economics - - Trade - - - Neoclassical Models of Trade F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
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Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002.
"Agglomeration and Trade Revisited,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
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OTTAVIANO, Gianmarco & TABUCHI, Takatoshi & THISSE, Jacques-Franois, 1999.
"Agglomeration and trade revisited,"
CORE Discussion Papers
1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
[Downloadable!]
Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-Francois Tissse, 1999.
"Agglomeration and Trade Revisited,"
CIRJE F-Series
CIRJE-F-65, CIRJE, Faculty of Economics, University of Tokyo.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.) This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.