Many of the facts about the extensive margin of trade---which firms export, and how many products 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 multi-product, multi-destination exporters. In contrast, balls-and-bins overpredicts the fraction of exporting firms.
Please cite as
Roc Armenter and Miklós Koren, 2014. “A Balls-and-Bins Model of Trade.” American Economic Review. 104(7), pp. 2127-2151. bib