Trade Flows, Multilateral Resistance and FirmHeterogeneity

We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selectioninto trade, while accommodating asymmetries in trade flows. A new equation for the proportion of exporting…firms takes a gravity form: the extensive margin is also accected by multilateral resistance. If all countries reducetheir trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in many cases.This is despite the larger trade elasticities implied by …rm heterogeneity. For isolated bilateral changes in tradefrictions, multilateral resistance effects are small for most countries, but are large when big importers are involved....