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The Role of Distance in Gravity Regressions: Is There Really a Missing Globalisation Puzzle?

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Author Info

  • Márquez-Ramos Laura

    ()
    (Institute of International Economics and Universitat Jaume I)

  • Martínez-Zarzoso Inmaculada

    ()
    (Institute of International Economics, Universitat Jaume I and Ibero-America Institute for Economic Research)

  • Suárez-Burguet Celestino

    ()
    (Institute of International Economics and Universitat Jaume I)

Abstract

The main aim of this paper is to investigate the role of distance in gravity regressions in relation to the missing globalisation puzzle cited by Coe et al. (2002). These authors claimed that the fact that distance coefficients do not fall over time is another puzzle that should have been added in Obsfeld and Rogoff's (2000) paper, in which six major puzzles in international macroeconomics were cited. In order to do so, a linear and a non-linear gravity model are estimated for a cross-section of 65 countries over the period 1980-1999. Non-linear specifications of the gravity model have been recently used in the literature to address the issue of non-declining transport costs over time (Coe et al., 2002 and Croce et al., 2004). However, we claim that there is no missing globalisation puzzle once the linear specification results are correctly interpreted. The main findings are that distance has a different effect for developed and developing countries and that the grounds for using a non-linear specification are not clear since the linear specification, in general terms, shows better performance than the non-linear one.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 7 (2007)
Issue (Month): 1 (January)
Pages: 1-25

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Handle: RePEc:bpj:bejeap:v:7:y:2007:i:1:n:6

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Cited by:
  1. Naudé, Wim & Matthee, Marianne, 2012. "Do Export Costs Matter in Determining Whether, When, and How Much African Firms Export?," Working Papers, JICA Research Institute 38, JICA Research Institute.
  2. Cardamone, Paola, 2007. "A survey of the assessments of the effectiveness of Preferential Trade Agreements using gravity models," Working Papers, TRADEAG - Agricultural Trade Agreements 7282, TRADEAG - Agricultural Trade Agreements.
  3. Elizaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Working Papers, DIAL (Développement, Institutions et Mondialisation) DT/2012/09, DIAL (Développement, Institutions et Mondialisation).

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