The Intensive Margin in Trade: How Big and How Important?

Fernandes, Ana M.; Klenow, Peter J.; Meleshchuk, Sergii; Pierola, Martha Denisse; Rodríguez-Clare, Andrés

Abstract

In benchmark trade models that feature a constant trade elastic-ity, bilateral exports vary entirely on the intensive margin (exports per firm) or entirely on the extensive margin (number of firms). Our empirical analysis documents that roughly one-half of this variation occurs along each margin, implying that the trade elasticity is not constant. We estimate a generalized Melitz model with a joint log-normal distribution for firm productivity, fixed costs, and demand shifters. Using exact-hat algebra, we quantify how trade costs affect trade flows and welfare. Welfare effects are similar to those in the Melitz-Pareto model, but implied trade flows differ significantly. (JEL D22, D24, D43, F12, F14, L13)

Citation

Fernandes, A. M., Klenow, P. J., Meleshchuk, S., Pierola, M. D., & Rodríguez-Clare, A. (2023). The Intensive Margin in Trade: How Big and How Important?. American Economic Journal: Macroeconomics, 15(3), 320-354. https://doi.org/10.1257/mac.20200269

• Journal Article Type: Article
• Acceptance Date: Jul 28, 2022
• Online Publication Date: Jul 1, 2023
• Publication Date: 2023-07
• Deposit Date: Sep 12, 2024
• Journal: American Economic Journal: Macroeconomics
• Print ISSN: 1945-7707
• Electronic ISSN: 1945-7715
• Publisher: American Economic Association
• Peer Reviewed: Peer Reviewed
• Volume: 15
• Issue: 3
• Pages: 320-354
• DOI: https://doi.org/10.1257/mac.20200269
• Public URL: https://nottingham-repository.worktribe.com/output/39460480
• Publisher URL: https://www.aeaweb.org/articles?id=10.1257/mac.20200269