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Has Distance Died? Evidence from a Panel Gravity Model

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

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

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References

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  1. 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.
  2. 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.
  3. 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, vol. 28(3), pages 571-580, July.
  4. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May.
  5. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  6. 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.
  7. 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.
  8. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, vol. 57(3), pages 695-700, May.
  9. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  10. C�line CARRERE, 2002. "Revisiting Regional Trading Agreements with Proper Specification of the Gravity Model," Working Papers 200210, CERDI.
  11. Dollar, David & Micco, Alejandro & Clark, Ximena, 2002. "Maritime transport costs and port efficiency," Policy Research Working Paper Series 2781, The World Bank.
  12. Hummels, David, 2001. "Time as a Trade Barrier," GTAP Working Papers 1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  13. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
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