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Title: Zeros, Quality and Space: Trade Theory and Trade Evidence

Author(s): Richard Baldwin and James Harrigan

Publication Date: June 2007

Keyword(s): Heterogeneous-firm trade models, QHFT model, Quality and trade and Testing trade theories

Programme Area(s): International Trade and Regional Economics

Abstract: 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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Bibliographic Reference

Baldwin, R and Harrigan, J. 2007. 'Zeros, Quality and Space: Trade Theory and Trade Evidence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6368