We develop a Ricardian trade model that incorporates realistic geographic features into general equilibrium. It delivers simple structural equations for bilateral trade with parameters relating to absolute advantage, to comparative advantage (promoting trade), and to geographic barriers (resisting it). We estimate the parameters with data on bilateral trade in manufactures, prices, and geography from 19 OECD countries in 1990. We use the model to explore various issues such as the gains from trade, the role of trade in spreading the benefits of new technology, and the effects of tariff reduction.

A new empirical literature has emerged that examines international trade at the level of individual producers. Bernard andJensen (1995, 1999a), Sofronis Clerides et al. (1998), and Bee Yan Aw et al. (2000), among others, have uncovered stylized facts about the behavior and relative performance of exporting rms and plants which hold consistently across a number of countries. Most strikingly, exporters are in the minority; they tend to be more productive and larger, yet they usually export only a small fraction of their output. This heterogeneity of performance diminishes only modestly when attention is restricted to producers within a given industry or with similar factor intensity.International trade theory has not had much to say about these producer-level facts, and in many cases is inconsistent with them. To the extent that empirical implications have been of concern, trade theory has been aimed at understanding aggregate evidence on such topics as the factor content of trade and industry specialization. To understand the effects of trade on micro issues such as plant closings, however, we need a theory that recognizes differences among individual producers within an industry. Moreover, as we elaborate below, such a theory is needed to understand the implications of trade for such aggregate magnitudes as worker productivity.Our purpose here is to develop a model of international trade that comes to grips with what goes on at the producer level. Such a model requires three crucial elements. First, we need to acknowledge the heterogeneity of plants. To do so we introduce Ricardian differences in technological ef ciency across producers and countries. Second, we need to explain the coexistence, even within the same industry, of exporters and purely domestic producers. To capture this fact we introduce costs to exporting through a standard "iceberg" assumption (export costs to a given destination are proportional to production costs). Third, in order for differences in technological ef ciency not to be fully absorbed by differences in output prices (thus eliminating differences in measured productiv-

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We examine the sales of French manufacturing firms in 113 destinations, including France itself. Several regularities stand out: (1) the number of French firms selling to a market, relative to French market share, increases systematically with market size; (2) sales distributions are very similar across markets of very different size and extent of French participation; (3) average sales in France rise very systematically with selling to less popular markets and to more markets. We adopt a model of firm heterogeneity and export participation which we estimate to match moments of the French data using the method of simulated moments. The results imply that nearly half the variation across firms that we see in market entry can be attributed to a single dimension of underlying firm heterogeneity, efficiency. Conditional on entry, underlying efficiency accounts for a much smaller variation in sales in any given market. Parameter estimates imply that fixed costs eat up a little more than half of gross profits. We use our results to simulate the effects of a counterfactual decline in bilateral trade barriers on French firms.

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