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Relationship between varieties produced and varieties

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relationship between varieties produced and varieties exported). However,these models predict that variety will expand in proportion to exporter size,which overstates the size of the observable extensive margin in the data.Furthermore, the Krugman model predicts that a country will export to allmarkets if it exports to any markets in a category, a prediction strikingly atodds with the evidence. Second prominent study is by Hummels and Klenowwho examined cross-country differences and find the extensive marginaccounts for 60 percent of the greater exports of larger economies.1716Evenett, Simon J. and Anthony J. Venables (2002), “Export Growth in Developing Countries: Market Entry andBilateral Trade Flows,” University of Bern working paper, mimeo. 17Amiti, M. & Freund, C. (2010). The Anatomy of China’s Export Growth. National Economic Research Institute.Date Accessed: December 19, 2016. Source:
On the other hand, a large body of work has also found that intensivemargin to have more value. The reason for the conflict is that large extensivemargins are inconsistent with Armington models, which have no extensivemargin and imply that larger economies face lower export prices. Sincecountries typically export to a strict subset of markets, with large economiesexporting to decidedly more markets. This suggests that fixed costs of exporta given product to market may be important.18It is supported by the work ofAmiti and Freund which find it plays a more important role in the growth ofChina’s exports between 1992 and 2005. Furthermore, Eaton et al. find whileup to one half of Colombian firms exporting in any given year are new, mostexport growth occurs on the intensive margin.19Often, the reason is that thefinding of new firms exporting small amounts and are facing high exportfailure rates.II.Combining the Extensive and Intensive MarginsThe development of the framework for the margins to be combinedrequired the reconciliation of the differing results. According to the study ofBesedes, one factor confounding the reconciliation is the different definitionsof extensive and intensive margins used in the literature. For the study ofEvenett and Venables, it defined the extensive margin at the country-productlevel, the paper of Amiti and Freund at the product level, and Felbermayr andKohler at the country level.20Exports classified at the extensive margin by18Eaton, Jonathan, Marcela Eslava, Maurice Kugler, and James Tybout (2008), \The Margins of Entry into ExportMarkets: Evidence from Colombia," in Elhanan Helpman, Dalia Marin, and Thiery Verdier, 15 eds., TheOrganization of Firms in a Global Economy, Cambridge, MA: Harvard University Press, 231-7219Felbermayr, Gabriel J. and Wilhelm Kohler (2006), \Exploring the Intensive and Extensive Margins of WorldTrade," Review of World Economics, 142(4):642{674.

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