How Important is the New Goods Margin in International Trade?

____________________________________________________________ We propose a methodology for studying changes in bilateral trade due to countries exporting goods that they did not export previously, or exported only in small quantities. Applying this methodology to countries pairs that undergo trade liberalization and to pairs where one of the countries undergoes significant structural transformation, we find large increases on this extensive — or new goods — margin. Looking at country pairs with no major trade policy change or structural change, however, we find little or no increases on the extensive margin. Studying time series on trade by commodity, we find that data from before 1988 and 1989, when most major trading countries moved to the Harmonized System, are not compatible with data from afterwards. ________________________________________________________________________ *We thank Tom Holmes, Sam Kortum, Ed Prescott, James Schmitz, Kei-Mu Yi, and participants at the Trade and IO and the Trade Workshops at the University of Minnesota for many valuable comments. We also thank John Dalton and Kevin Wiseman for extraordinary research assistance. We gratefully acknowledge the support of the National Science Foundation under grant SES-0536970. All of the data used in this paper are available at www.econ.umn.edu/~tkehoe. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.