A Balls-and-Bins Model of Trade

Abstract

Many of the facts about the extensive margin of trade—which firms export, and how many products are sent to how many destinations— are consistent with a surprisingly large class of trade models because of the sparse nature of trade data. We propose a statistical model to account for sparsity, formalizing the assignment of trade shipments to country, product, and firm categories as balls falling into bins. The balls-and-bins model quantitatively reproduces the pattern of zero product- and firm-level trade flows across export destinations, and the frequency of multiproduct, multidestination exporters. In contrast, balls-and-bins overpredicts the fraction of exporting firms. ( JEL F11, F14)

How Important Is the New Goods Margin in International Trade?

“…Armenter and Koren (2010) and Alessandria, Kaboski, and Midrigan (2010) document the discrete nature of international trade shipments. The concern here is that there may be goods for which export relationships exist between a pair of countries, but a particular good may not be traded in a given year.…”

“…Armenter and Koren (2010) discuss the nonuniform distribution of trade categories in detail and demonstrate that this feature can affect the interpretation of trade data, particularly when a researcher is interested in goods with zero trade. To help normalize the SITC codes, we could rank goods by their trade-to-output ratio or by their trade-to-world-trade ratio in the base year.…”

“…Fixed costs associated with trading may impart a natural discreteness to trade flows. Armenter and Koren (2010), using U.S. trade data, document that low-value goods tend to be exported in remarkably equal-sized shipments. They attribute this discreteness to the economics of modern ocean transportation: it is not profitable to ship a half-full intermodal freight container.…”

Trade Adjustment and Productivity in Large Crises

“…However, to test this more formally, we run a series of regressions of the form: 19 Some of these patterns are consistent with trade flows being innately lumpy as in Armenter and Koren (2010). In our analysis below, it makes little difference whether the patterns are generated by lumpiness or by fixed costs, so long as they generate heterogeneity in trade adjustment and cause firms to drop varieties.…”

Customs

“…First, firms export at different points in time, which makes it particularly difficult to properly identify the comparison group for those shipments subject to inspections and delays. Second and related, there is lumpiness in exports, i.e., most firms sell abroad at specific dates and then there are long periods of inaction (e.g., Armenter and Koren, 2014). As a consequence, estimations based on higher frequency data and accordingly shorter variations (e.g., month-to-month changes) would primarily identify the effects of delays on a particular set of export flows-those with year-round shipments.…”