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Mismeasurement of Distance Effects: The Role of Internal Location of Production

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  • Hakan Yilmazkuday

Abstract

The estimated effects of distance in empirical international trade regressions are unrealistically high. Using state-and-sector level US exports data, this paper shows analytically and proves empirically that ignoring the internal location of production (of international exports), which leads to the overestimation of distance effects by about twofold, is a possible explanation. This overestimation is mostly attributed to the mismeasurement of the distance elasticity of trade costs when internal locations of production are ignored. A corrective distance index is proposed to avoid such mismeasurements and is shown to work well for the median sector. The results are robust to the consideration of alternative estimation methodologies and data sets.

Suggested Citation

  • Hakan Yilmazkuday, 2014. "Mismeasurement of Distance Effects: The Role of Internal Location of Production," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 992-1015, November.
    • Handle: RePEc:bla:reviec:v:22:y:2014:i:5:p:992-1015
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    File URL: http://hdl.handle.net/10.1111/roie.12151
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    1. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
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    1. Mismeasurement of Distance Effects: The Role of Internal Location of Production
      by Hakan Yilmazkuday in Hakan Yilmazkuday's Blog on 2016-12-08 21:27:00

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    Cited by:

    1. Yilmazkuday, Hakan, 2012. "Understanding interstate trade patterns," Journal of International Economics, Elsevier, vol. 86(1), pages 158-166.
    2. Yulin Hou & Yun Wang & Hakan Yilmazkuday, 2023. "Gravity channels in trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 32(1), pages 37-65, January.
    3. Yilmazkuday, Hakan, 2019. "Understanding the international elasticity puzzle," Journal of Macroeconomics, Elsevier, vol. 59(C), pages 140-153.
    4. Jason Query, 2020. "Differing trade elasticities for intra‐ and international distances: A gravity approach," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 913-929, August.
    5. Hakan Yilmazkuday, 2017. "A Solution to the Missing Globalization Puzzle by Non-CES Preferences," Review of International Economics, Wiley Blackwell, vol. 25(3), pages 649-676, August.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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