Trade Flows, Multilateral Resistance and Firm Heterogeneity

We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selection into 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 affected by multilateral resistance.� If all countries reduce their trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in many cases.� This is despite the larger trade elastictiies implied by firm heterogeneity.� For isolated bilateral changes in trade frictions, multilateral resistance effects are small for most countries, but are large when big importers are involved.Gravity models, Multilateral resistance, Firm heterogeneity