Heterogeneous firms, exporter networks and the effect of distance on international trade
AbstractDistance 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 InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 87 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/505552
Gravity; Distance; Trade; Fixed costs; Networks;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
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- 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.
- Olivier Cadot & Ana M. Fernandes & Julien Gourdon & Aaditya Mattoo, 2012. "Are the Benefits of Export Support Durable? Evidence from Tunisia," Working Papers 2012-30, CEPII research center.
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