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Has Distance Died? Evidence from a Panel Gravity Model

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  • Jean-François Brun
  • Céline Carrère
  • Patrick Guillaumont
  • Jaime de Melo

Abstract

The estimated coefficient of distance on the volume of trade is generally found to increase rather than decrease through time using the traditional gravity model of trade. This distance puzzle proved robust to several ad hoc versions of the model using data for 1962--96 for a large sample of 130 countries. The introduction of an "augmented" barrier to trade function removes the paradox, yielding a decline in the estimate of the elasticity of trade to distance of about 11 percent over the 35-year period for the whole sample. However, the "death of distance" is shown to be largely confined to bilateral trade between rich countries, with poor countries becoming marginalized. Copyright 2005, Oxford University Press.

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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 19 (2005)
Issue (Month): 1 ()
Pages: 99-120

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Handle: RePEc:oup:wbecrv:v:19:y:2005:i:1:p:99-120

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  1. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
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