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Has Distance Died? Evidence from a Panel Gravity Model

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  • Jean-François BRUN

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Céline CARRERE

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Patrick GUILLAUMONT

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Jaime MELO DE

    ()
    (Université Genève)

Abstract

This paper reports panel gravity estimates of aggregate bilateral trade for 130 countries over the period 1962-96 in which the coefficient of distance is allowed to change over time. In a standard specification in which transport costs are proxied by distance only, it is found paradoxically that the absolute value of the elasticity of bilateral trade to distance has been significantly increasing.The result is attributed to a relatively larger decline in costs independent of distance (such as handling) than in distance-related costs (e.g. oil price). An extended version of the model that controls for these two factors eliminates this positive trend without reversing it. However, when the sample is split into two groups ("rich-rich" and "poor-poor"), the paradox is maintained for the "poor-poor" group. While not conclusive, these results are consistent with the view that poor countries may have been marginalized by the current wave of globalization.

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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 200215.

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Length: 33
Date of creation: 2002
Date of revision:
Publication status: Published in World Bank Economic Review, 2005, pages 99-120
Handle: RePEc:cdi:wpaper:180

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  1. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
  2. Verbeek, M.J.C.M. & Nijman, T.E., 1992. "Incomplete panels and selection bias: A survey," Discussion Paper, Tilburg University, Center for Economic Research 1992-7, Tilburg University, Center for Economic Research.
  3. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  4. Hummels, David, 2001. "Time as a Trade Barrier," GTAP Working Papers 1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  5. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 72, July.
  6. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, Springer, vol. 28(3), pages 571-580, July.
  7. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-53, February.
  9. 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.
  10. Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers, Michigan - Center for Research on Economic & Social Theory 95-05, Michigan - Center for Research on Economic & Social Theory.
  11. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
  12. Patrick GUILLAUMONT & Jean-François BRUN & Jaime MELO DE, 1998. "La distance abolie ? Critères et mesure de la mondialisation du commerce extérieur," Working Papers 199830, CERDI.
  13. C�line CARRERE, 2002. "Revisiting Regional Trading Agreements with Proper Specification of the Gravity Model," Working Papers 200210, CERDI.
  14. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 57(3), pages 695-700, May.
  15. Dollar, David & Micco, Alejandro & Clark, Ximena, 2002. "Maritime transport costs and port efficiency," Policy Research Working Paper Series 2781, The World Bank.
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