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Has Distance Died? Evidence from a Panel Gravity Model

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Author Info
Brun, Jean-François
Carrère, Céline
de Melo, Jaime
Guillaumont, Patrick

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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 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3500.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3500

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Related research
Keywords: distance; globalization; panel gravity model; transport costs;

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bhattacharyya Ranajoy & Banerjee Tathagata, 2006. "Does the Gravity Model Explain India's Direction of Trade? A Panel Data Approach," IIMA Working Papers 2006-09-01, Indian Institute of Management Ahmedabad, Research and Publication Department. [Downloadable!]
  2. Matthieu Crozet & Pamina Koenig, 2007. "Structural gravity equations with intensive and extensive margins," EconomiX Working Papers 2007-36, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
    Other versions:
  3. Laura Serlenga & Yongcheol Shin, 2004. "Gravity Models of the Intra-EU Trade: Application of the Hausman-Taylor Estimation in Heterogeneous Panels with Common Time-specific Factors," ESE Discussion Papers 105, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
  4. Borgatti, Lisa, 2007. "Pacific Islands' Bilateral Trade: The Role of Remoteness and of Transport Costs," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  5. Jean-Marie GRETHER & Nicole Mathys, 2008. "Is the World's Economic Center of Gravity Already in Asia?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 08.03, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
  6. Rikhil Bhavnani & David T. Coe & Arvind Subramanian & Natalia T. Tamirisa, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund. [Downloadable!]
  7. Claudia M. Buch & Jörn Kleinert & Farid Toubal, 2003. "The Distance Puzzle: On the Interpretation of the Distance Coefficient in Gravity Equations," Kiel Working Papers 1159, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  8. Jean-Marie Grether & Jaime de Melo, 2003. "Globalization and Dirty Industries: Do Pollution Havens Matter?," NBER Working Papers 9776, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Carrere, Celine & Schiff, Maurice, 2004. "On the geography of trade : distance is alive and well," Policy Research Working Paper Series 3206, The World Bank. [Downloadable!]
    Other versions:
  10. Gabriel J. Felbermayr & Wilhelm Kohler, 2004. "Exploring the Intensive and Extensive Margins of World Trade," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  11. Petr Mariel & Susan Orbe & Carlos Rodríguez, 2007. "A time varying coefficient model for panel data: Foreign Direct Investment in European OECD countries," BILTOKI 200703, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística). [Downloadable!]
  12. Do, Quy-Toan & Levchenko, Andrei A., 2006. "Comparative advantage, demand for external finance, and financial development," Policy Research Working Paper Series 3889, The World Bank. [Downloadable!]
    Other versions:
  13. Millimet, Daniel & Henderson, Daniel, 2006. "Is Gravity Linear?," Departmental Working Papers 0517, Southern Methodist University, Department of Economics. [Downloadable!]
    Other versions:
  14. Boriss Siliverstovs & Dieter Schumacher, 2008. "Disaggregated Trade Flows and the “Missing Globalization Puzzle”," Working papers 08-209, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
    Other versions:
  15. José Guimón, . "Geo-economic implications of the fifth EU enlargement," Studies on the Spanish Economy 167, FEDEA. [Downloadable!]
  16. Gert-Jan M. Linders, 2005. "Distance Decay in International Trade Patterns - a Meta-analysis," ERSA conference papers ersa05p679, European Regional Science Association. [Downloadable!]
  17. Christopher Gust & Sylvain Leduc & Robert J. Vigfusson, 2006. "Trade integration, competition, and the decline in exchange-rate pass-through," International Finance Discussion Papers 864, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  18. Guillaumont, Patrick, 2008. "An Economic Vulnerability Index: Its Design and Use for International Development Policy," Working Papers RP2008/99, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  19. Yongcheol Shin & Laura Serlenga, 2007. "Gravity models of intra-EU trade: application of the CCEP-HT estimation in heterogeneous panels with unobserved common time-specific factors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 361-381. [Downloadable!]
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