A Balls-and-Bins Model of Trade

Many of the facts about the extensive margin of trade-which firms export, and how many products are sent to how many destinations-are consistent with a surprisingly large class of trade models because of the sparse nature of trade data. We propose a statistical model to account for sparsity, formalizing the assignment of trade shipments to country, product, and firm categories as balls falling into bins. The balls-and-bins model quantitatively reproduces the pattern of zero product-and firm-level trade flows across export destinations, and the frequency of multiproduct, multidestination exporters. In contrast, balls-and-bins overpredicts the fraction of exporting firms.