Estimating the Extensive Margin of Trade

João Santos Silva, Silvana Tenreyro and Kehai Wei

No 10787, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Understanding and quantifying the determinants of the number of sectors or firms exporting in a given country is of relevance for the assessment of trade policies. Estimation of models for the number of sectors, however, poses a challenge because the dependent variable has both a lower and an upper bound, implying that the partial effects of the explanatory variables on the conditional mean of the dependent variable cannot be constant and must approach zero as the conditional mean approaches its bounds. We argue that ignoring these bounds can lead to erroneous conclusions due to the model's mispecification, and propose a flexible specification that accounts for the doubly-bounded nature of the dependent variable. We empirically investigate the problem and the proposed solution, finding significant differences between estimates obtained with the proposed estimator and those obtained with standard approaches.

Keywords: Bounded data; Extensive margin of trade; Number of sectors (search for similar items in EconPapers)
JEL-codes: C13 C25 F11 F14 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-ger and nep-int
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Estimating the extensive margin of trade (2014)
Working Paper: Estimating the extensive margin of trade (2014)
Working Paper: Estimating the Extensive Margin of Trade (2012)
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