Ana Fernandes and Martha Pierola, World Bank; Peter Klenow, Stanford University and NBER; Sergii Meleshchuk, University of California, Berkeley, and Andrés Rodríguez-Clare, University of California, Berkeley and NBER

The Intensive Margin in Trade: Moving Beyond Pareto

The Melitz model with Pareto-distributed firm productivity has become a tractable benchmark in international trade. It predicts that, conditional on the fixed costs of exporting, all variation in exports across trading partners will occur on the extensive margin (the number of firms exporting). In the World Bank's Exporter Dynamics Database on firm-level exports from 45 countries, however, Fernandes, Klenow, Meleshchuk, Rodríguez-Clare, and Pierola find that half of export variation occurs on the intensive margin (exports per exporting firm). The researchers explore several ways to explain this discrepancy. Most importantly, firm productivity does not follow a Pareto distribution.