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Heterogeneous firms, exporter networks and the effect of distance on international trade

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  • Krautheim, Sebastian

Abstract

Distance effects in gravity equations are high and are not decreasing over time. Given that technical change in transport technology is biased in favor of long distances, this constitutes a challenge for existing theoretical models. In line with recent empirical evidence, this paper introduces a spillover effect from the number of exporters to the fixed costs of exporting into a trade model with heterogeneous firms. Since less firms export to remote markets, the equilibrium fixed costs are increasing in distance. This creates an additional effect of distance on aggregate trade flows: while the intensive margin of trade is unaffected, the extensive margin is magnified. This magnification leads to higher predicted distance effects. In addition, it offers a new perspective on non-decreasing distance effects: a relatively moderate strengthening of the spillover over time is sufficient to generate a constant distance elasticity.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 87 (2012)
Issue (Month): 1 ()
Pages: 27-35

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Handle: RePEc:eee:inecon:v:87:y:2012:i:1:p:27-35

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Gravity; Distance; Trade; Fixed costs; Networks;

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References

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Citations

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Cited by:
  1. Roberto Ramos & Enrique Moral-Benito, 2013. "Agglomeration matters for trade," Banco de Espa�a Working Papers 1316, Banco de Espa�a.
  2. Cadot, Olivier & Fernandes, Ana M. & Gourdon, Julien & Mattoo, Aaditya, 2012. "Are the benefits of export support durable ? evidence from Tunisia," Policy Research Working Paper Series 6295, The World Bank.
  3. Facundo Albornoz & Hector Calvo-Pardo & Gregory Corcos & Emanuel Ornelas, 2010. "Sequential Exporting," CEP Discussion Papers dp0974, Centre for Economic Performance, LSE.
  4. Elizaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," FIW Working Paper series 095, FIW.
  5. Parrotta, Pierpaolo & Pozzoli, Dario & Sala, Davide, 2014. "Ethnic Diversity and Firms' Export Behavior," IZA Discussion Papers 7923, Institute for the Study of Labor (IZA).
  6. Larch, Mario & Norbäck, Pehr-Johan & Sirries, Steffen & Urban, Dieter, 2013. "Heterogeneous Firms, Globalization and the Distance Puzzle," Working Paper Series 957, Research Institute of Industrial Economics.
  7. Nakhoda, Aadil, 2013. "The impact of the exports of BRIC countries plus Turkey on the exports of Pakistan," MPRA Paper 52477, University Library of Munich, Germany.
  8. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2013. "The Distance Effects on the Intensive and Extensive Margins of Trade Over Time," Discussion Papers Series 488, School of Economics, University of Queensland, Australia.
  9. Andrew Cassey & Katherine Schmeiser, 2013. "The agglomeration of exporters by destination," The Annals of Regional Science, Springer, vol. 51(2), pages 495-513, October.
  10. Sufrauj, Shamnaaz & Schiavo, Stefano & Riccaboni, Massimo, 2014. "The Structure and Growth of World Trade, and the Role of Europe in the Global Economy," MPRA Paper 54122, University Library of Munich, Germany.

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