Appendix for “ Zeros , Quality and Space : Trade Theory and Trade

The slightly simplified version of the Eaton-Kortum (EK) model that we work with has C nations each of which is endowed with a single factor of production (labor) used to produce a continuum of goods under conditions of perfect competition and constant returns. The transport costs between a typical origin nation (nation-o) and a typical destination nation (nation-d) are assumed to be of the iceberg type and captured by the parameters od  1 where od is the amount of the good that must be shipped from o to sell one unit in d. The double-subscript notation follows the standard ‘from-to’ convention, so oo = 1 for all nations (intra-nation trade costs are zero). Consumer preferences are identical across nations and defined over the continuum of goods. They are described by a CES utility function, and expenditure on any typical variety-j by a typical destination nation (nation-d) is