Distorted Gravity: The Intensive and Extensive Margins of International Trade

Thomas Chaney

American Economic Review, 2008, vol. 98, issue 4, 1707-21

Abstract: By considering a model with identical firms, Krugman (1980) predicts that a higher elasticity of substitution between goods magnifies the impact of trade barriers on trade flows. In this paper, I introduce firm heterogeneity in a simple model of international trade. I prove that the extensive margin and the intensive margin are affected by the elasticity of substitution in exact opposite directions. When the distribution of productivity across firms is Pareto, the predictions of the Krugman model with representative firms are overturned: the impact of trade barriers on trade flows is dampened by the elasticity of substitution, and not magnified. (JEL F12, F13)

JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2008
Note: DOI: 10.1257/aer.98.4.1707
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1752)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.98.4.1707 (application/pdf)
http://www.aeaweb.org/aer/data/sept08/20050798_app.pdf (application/pdf)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Distorted Gravity: The Intensive and Extensive Margins of International Trade (2008)
Working Paper: Distorted Gravity: The Intensive and Extensive Margins of International Trade (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:98:y:2008:i:4:p:1707-21

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().