Estimating the gravity equation with the actual number of exporting firms
To estimate correctly the effect of variable trade costs of firms' exports, the gravity equation should control for the lumber 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...
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| Autores principales: | , |
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| Lenguaje: | English |
| Publicado: |
Universidad de Chile. Departamento de Economía
2013
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| Materias: | |
| Acceso en línea: | http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0718-52862013000100001 |
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| Sumario: | To estimate correctly the effect of variable trade costs of firms' exports, the gravity equation should control for the lumber 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 estimates. 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 not controlling for the extensive margin of trade introduces very serious biases in the estimated trade cost coefficients. |
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