## The Intensive Margin in Trade

_IMF Working Papers, December 7, 2018_

## Source details

**Canonical URL:** [The Intensive Margin in Trade](https://www.imf.org/en/publications/wp/issues/2018/12/07/the-intensive-margin-in-trade-46389)

## Other formats

- [Markdown version](/en/publications/wp/issues/2018/12/07/the-intensive-margin-in-trade-46389/index.md)
- [Structured JSON version](/en/publications/wp/issues/2018/12/07/the-intensive-margin-in-trade-46389/index.json)
- [Bundle manifest](/en/publications/wp/issues/2018/12/07/the-intensive-margin-in-trade-46389/bundle-manifest.json)

## Bibliographic details
- Authors: Peter J. Klenow, Sergii Meleshchuk, Martha Denisse Pierola
- Published: December 7, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484386170.001

---

### Key findings
- Around 50 percent of variation in exports is along the extensive margin (the number of firms exporting).
- The remaining 50 percent of variation is along the intensive margin (exports per exporting firm).
- A special-case Melitz model with Pareto-distributed firm productivity predicts that, conditional on fixed costs of exporting, all variation in exports across trading partners should occur on the extensive margin; this prediction contradicts the empirical EDD evidence.
- Moving from a Pareto to a lognormal productivity distribution allows the Melitz model to match the observed role of the intensive margin in the World Bank’s Exporter Dynamics Database (EDD).

### Data and methodology
- Data source: World Bank’s Exporter Dynamics Database (EDD) featuring firm-level exports from 50 countries.
- Model estimation: Likelihood methods applied to a generalized Melitz model with a joint lognormal distribution for firm-level productivity, fixed costs, and demand shifters.
- Quantification technique: “Exact hat algebra” used to quantify effects of a decline in trade costs on trade flows and welfare in the estimated model.

### Comparative results and implications
- Welfare effects in the estimated Melitz-lognormal model are quite close to those in the standard Melitz-Pareto model when the Pareto shape parameter is chosen to fit the average trade elasticity implied by the estimated Melitz-lognormal model.
- Despite similar welfare effects under that calibration, there are significant differences between the Melitz-lognormal and Melitz-Pareto models regarding the effects on trade flows (notably the division between extensive and intensive margins).

### Policy-relevant insights
- Empirical importance of the intensive margin implies that policies and reforms affecting firm-level export performance (export values per exporter) can be as important for aggregate exports as policies affecting firm entry into exporting.
- Models and calibrations used to evaluate trade liberalization and trade-cost reductions should account for the empirical presence of a substantial intensive margin; using Pareto assumptions may misrepresent effects on trade flows even when welfare effects appear similar under matched trade elasticities.

*IMF Working Paper: "The Intensive Margin in Trade", Peter J. Klenow, Sergii Meleshchuk, Martha Denisse Pierola, Martha Denisse Pierola; December 7, 2018.*

---

## Content in this bundle

- **The Intensive Margin in Trade, WP/18/259, December 2018**
  - [The Intensive Margin in Trade, WP/18/259, December 2018 (Markdown version)](/-/media/files/publications/wp/2018/wp18259.pdf.md){rel="alternate" type="text/markdown"}
  - [The Intensive Margin in Trade, WP/18/259, December 2018 (PDF)](/-/media/files/publications/wp/2018/wp18259.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2018/12/07/the-intensive-margin-in-trade-46389_