Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/46475 
Year of Publication: 
2011
Series/Report no.: 
CESifo Working Paper No. 3387
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Helpman, Melitz and Rubinstein (2008) derive gravity equations to estimate effects of trade barriers on the intensive and extensive margins of trade. They exploit the frequency of zeros in aggregate bilateral trade data to identify effects on the extensive margin and to obtain controls for firm level heterogeneity and sample selection on the intensive margin. By using data on the number of bilaterally traded products we improve on identification and allow estimation of the extensive margin when data contain only positive trade flows. We also control for the pervasive presence of heteroscedasticity in trade data. The heterogeneity and selection biases are shown to be small and unimportant whereas the heteroscedasticity bias is large and important.
Subjects: 
gravity estimation
heteroscedasticity in data
intensive and extensive margin
JEL: 
F10
F12
F14
Document Type: 
Working Paper
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