External Imbalances and the Extensive Margin of Trade

We quantify the role of the extensive margin in the recent trade dynamics of selected countries that are running large and persistent trade imbalances. We find that the role of the extensive margin is quite substantial, although it varies in significance across the countries in the sample. Finally, we highlight differences in behaviour between the fixed-varieties and varieties-adjusted terms of trade. Copyright 2008 The Authors Journal compilation 2008 Banca Monte dei Paschi di Siena SpA.