Estimating the gravity equation with the actual number of exporting firms

Asier Minondo () and Francisco Requena-Silvente
Additional contact information
Francisco Requena-Silvente: Universidad de Valencia
Authors registered in the RePEc Author Service: Francisco Requena Silvente

No 1121, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: To estimate correctly the effect of variable trade costs on firms' exports, the gravity equation should control for the number of firms that participate in foreign markets. Due to the absence of these data, previous studies control for this omitted variable using econometric strategies that may also lead to inconsistent estimations. To overcome this problem the present paper estimates a gravity equation using a new database compiled by the OECD and Eurostat that reports the number of exporting firms by reporter and partner country. We show that no controlling for the extensive margin of trade introduces very serious biases in the estimated trade cost coefficients. Moreover, these biases are much larger than predicted by previous studies.

Keywords: gravity equation; exporting firms; distance; trade costs (search for similar items in EconPapers)
JEL-codes: F14 F15 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-09
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://repecsrv.uv.es/paper/RePEc/pdf/eec_1121.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Estimating the gravity equation with the actual number of exporting firms (2013)
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:eec:wpaper:1121

Access Statistics for this paper

More papers in Working Papers from Department of Applied Economics II, Universidad de Valencia Contact information at EDIRC.
Bibliographic data for series maintained by Vicente Esteve ().