Joakim Gullstrand

David Greenaway

Richard Kneller

AgriFood-WP 2009:2

Firm Heterogeneity and the Geography of International Trade

An important contribution of heterogeneous-firm models is the need to consider the determinants of exports at the intensive and extensive margins. This paper exploits detailed firm data on the destination of exports and finds empirical evidence that trade flows are affected in a manner consistent with this theory. In addition we compare our results to those generated using data where information on firms or on destinations is not available. As Helpman, Melitz and Rubenstein (2008) demonstrate for the gravity model, and we additionally show for the firm export model, the relationship between firm and destination characteristics on trade volumes are biased upwards. However, we also find a second source of bias for these models from the interaction between destination and firm characteristics.