Trade Costs in Bilateral Trade Flows: Heterogeneity and Zeroes in Structural Gravity Models

This paper contributes to the explanation of international trade flows with structural gravity models taking heterogeneity and excess zeroes into account. We introduce a more general hypothesis on the structure of trade costs in Helpman et al. (2008) theoretical model that is capable of explaining over-dispersion in trade data. Zero inflated negative binomial models are considered to analyze the impact of trade costs, measured in terms of geographical distance and contiguity effects. An analysis related to a sample of 37 countries trade flows, with heterogeneous effects across sectors and trade integrated areas, such as APEC and EU, is presented. The size of exporting and destination economies, cultural and institutional factors are considered as influencing both the extensive and the intensive margin of trade.