Decomposition of extensive and intensive margin impacts of trade policies

Using a multi-region heterogeneous-firm trade model, this paper develops a method to decompose volumes and values of domestic sales, bilateral trade, total production and consumption into their intensive and extensive margins. With the free-entry condition, the extensive margin is further decomposed into two subcategories: operating-extensive margin and entrance/exit-extensive margin. This method can provide ex ante predictions on gains and losses in the margins of member and nonmember countries following a trade agreement. We apply our decomposition methods to quantitatively analyse the impacts of CETA between Canada and the European Union on the world processed food industry.