This paper by Richard Baldwin and James Harrigan examines the spatial incidence of "export zeros" and export unit values in bilateral, product-level trade data. The authors find that leading theoretical trade models fail to explain certain patterns, such as the correlation between export zeros and distance, and the positive relationship between export unit values and distance. They propose a modified version of the Melitz model, which incorporates heterogeneous firm quality and costs, to account for these facts. In their model, high-quality firms are more competitive, and their prices increase with firm-specific costs. The paper uses U.S. trade data to test the predictions of various trade models, including the Eaton-Kortum model, the monopolistic competition model, and the heterogeneous-firms trade (HFT) model. The results show that the HFT model, with its introduction of taste for quality, better explains the observed patterns in trade data. The authors conclude that the model's predictions are supported by the data, particularly in explaining the spatial patterns of export zeros and prices.This paper by Richard Baldwin and James Harrigan examines the spatial incidence of "export zeros" and export unit values in bilateral, product-level trade data. The authors find that leading theoretical trade models fail to explain certain patterns, such as the correlation between export zeros and distance, and the positive relationship between export unit values and distance. They propose a modified version of the Melitz model, which incorporates heterogeneous firm quality and costs, to account for these facts. In their model, high-quality firms are more competitive, and their prices increase with firm-specific costs. The paper uses U.S. trade data to test the predictions of various trade models, including the Eaton-Kortum model, the monopolistic competition model, and the heterogeneous-firms trade (HFT) model. The results show that the HFT model, with its introduction of taste for quality, better explains the observed patterns in trade data. The authors conclude that the model's predictions are supported by the data, particularly in explaining the spatial patterns of export zeros and prices.