Roc Armenter : Research

with Miklos Koren.

A number of stylized facts have been documented about the extensive margin of trade---how many products countries or firms send to how many destinations. We argue that several of these facts are driven by the sparse nature of trade data and fail to identify the relevant model of the extensive margin. Typically the number of observations---that is, total shipments---is low relative to the number of possible classifications---e.g., destinations and product codes. We propose an atheoretical framework to account for the sparsity of trade data, formalizing the assignment of shipments to categories as balls falling into bins. The balls-and-bins model quantitatively reproduces the pattern of zero product-level trade flows and firm-level facts regarding destinations and products. In contrast, the balls-and-bins model cannot reproduce the small fraction of exporters among U.S. firms. We discuss the implications for identifying the relevant model of the extensive margin in trade.