Extensive and Intensive Trade Margins: A State-by-State View

Abstract

This paper examines a topic of increasing interest, the potential determinants of extensive (i.e., number of firms) and intensive (i.e., average exports per firm) trade margins, using state-level trade to 190 countries. In addition to distance and country size, other factors affecting trade costs and export demand are explored. In state-by-state regressions, these other factors exhibit more consistent and statistically significant effects on the extensive than on the intensive trade margin. One noteworthy finding is that U.S. foreign direct investment has a positive effect on both margins. In regressions using all state-level data simultaneously, some factors affect both margins, but not necessarily in the same way. For example, the impact of the communications infrastructure in the importing country affects the extensive margin positively and the intensive margin negatively. Finally, reasons for differences across states, such as state size and trade missions, are identified.