One of the most robust empirical results in international economics is the existence of a negative relationship between trade flows and distance. More recent research on exporting activity at the firm level has established an apparently equally robust resultfew firms export, and exporting firms do not sell in all possible markets. This paper uses data on US exports across 156 countries to decompose exports to each market into the number of firms exporting (the extensive margin) and average export sales per firm (the intensive margin). We show how the effects of distance and a range of other proxies for trade costs have different impacts on the two margins. We find that distance has a negative effect on both margins, but the magnitude of the coefficient is considerably larger and more significant for the extensive margin. Most of the variables capturing language, internal geography, infrastructure and import cost barriers work solely through the extensive margin. We show that these results are consistent with the predictions of a Melitz-style model of trade with heterogeneous firm productivity and fixed costs. Non-Technical SummaryThis paper decomposes total trade from the United States to its destination countries into two components -an extensive margin capturing the number of exporting firms and an intensive margin related to the average exports per firm. It then examines how a range of variables related to trade costs affects total trade, the number of firms and average exports.One of the longest-standing and most robust empirical results in international economics is the existence of a negative relationship between aggregate exports and distance.More recent research on exporting activity at the firm level has established an apparently equally robust result-few firms export, and exporting firms usually sell in a limited number of markets. This has led to the development of new models of trade that focus on firmlevel exporting decisions. The most influential of these has been Melitz's (2003) model, which is based on assumptions of firm heterogeneity in productivity and fixed costs. This combination implies the existence of a productivity threshold for each country that firms must exceed if they are to export to that country. This paper uses data from the US Census Bureau, detailing exports and numbers of exporting firms from the US to 156 destination markets. We examine the impact of a wide range of variables such as common language, influences of internal geography, and infrastructure.In addition, we use new data from the World Bank on the costs associated with importing procedures (Djankov, Freund and Pham, 2008). These include financial costs coming from customs and port fees as well as less tangible costs such as the length of time it takes for imports to be processed and the complexity of the importing procedure, measured by the number of documents that have to be completed for each container-load.We show how the Melitz (2003) model can be used to derive predictions for how various factors will a...

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Wage Dynamics NetworkThis paper contains research conducted within the Wage Dynamics Network (WDN). The WDN is a research network consisting of economists from the European Central Bank (ECB) and the national central banks (NCBs) of the EU countries. The WDN aims at studying in depth the features and sources of wage and labour cost dynamics and their implications for monetary policy. The specific objectives of the network are: i) identifying the sources and features of wage and labour cost dynamics that are most relevant for monetary policy and ii) clarifying the relationship between wages, labour costs and prices both at the firm and macro-economic level.The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB, Bihan (Banque de France) and Thomas Mathä (Banque centrale du Luxembourg).form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the author's own and do not necessarily reflect those of the ESCB.The paper is released in order to make the results of WDN research generally available, in preliminary The WDN is chaired by Frank Smets (ECB). Giuseppe Bertola (Università di Torino) and Julián Messina chairperson), Philip Vermeulen (ECB), Giuseppe Bertola, Julián Messina, Jan Babecký (CNB), Hervé Le (World Bank and University of Girona) act as external consultants and Ana Lamo (ECB) as Secretary. ECB Working Paper Series No 1105November 2009 Abstract 4 Non-technical summary 5

Two recent trends in international economics have been an increased focus on the geography of trade (e.g. what factors determine where a country exports to) and the emergence of empirical work examining firm-level data on exporting activity. However, data limitations have prevented there being much progress in combining these two areas, because very few countries provide firm-level data breaking down firm exports by their destination. Eaton, Kortum and Kramarz (2004) have analysed such data for French firms but their study only uses a single cross-section of data. This paper uses a unique survey of Irish exporting firms over a five year period to fill some of the gaps in this empirical literature. With information on over fifty destinations, firm-level changes in market coverage and their contribution to net export growth are investigated. Firm involvement in individual export markets is found to be much more dynamic than export status. Entry and exit to markets is shown to be a quantifiably important component of overall export flows, with this factor becoming more important for less popular markets. The paper also shows how the patterns of entry and exit into export markets combine to determine the overall firm-level distribution of number of markets entered.

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