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Exploring the Intensive and Extensive Margins of World Trade

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Abstract

World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post–World War II growth in manufacturing world trade along these two margins. We propose a “corner-solutions version” of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called “distance puzzle”. It also finds more convincing evidence than recent literature that WTO-membership enhances trade.

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Authors and Affiliations

  1. Eberhard Karls University Tübingen, Nauklerstrasse 47, 72074, Tübingen, Germany

    Gabriel J. Felbermayr & Wilhelm Kohler

Authors
  1. Gabriel J. Felbermayr
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  2. Wilhelm Kohler
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Correspondence to Wilhelm Kohler.

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JEL no.

F12, F15

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Felbermayr, G., Kohler, W. Exploring the Intensive and Extensive Margins of World Trade. Rev. World Econ. 142, 642–674 (2006). https://doi.org/10.1007/s10290-006-0087-3

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  • DOI: https://doi.org/10.1007/s10290-006-0087-3

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