To estimate correctly the effect of variable trade costs on firms’ exports, the gravity equation should control for the number of firms that participate in foreign markets. Due to the absence of these data, previous studies control for this omitted variable using econometric strategies that...

This paper assesses whether the sensitivity of bilateral trade volumes to various trade cost factors is constant or varies across countries. It utilizes a random coeffcients model and analyses a cross-sectional sample of bilateral trade data for 96 countries in 2005. We expect the elasticity of...