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North, South and Distance in the Gravity Model

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  • Jacques Melitz

    (Crest)

Abstract

It is generally assumed that distance in the gravity model strictly reflects frictions impedingbilateral trade. However, distances North-South could also reflect differences in factorendowment that provide opportunities for profitable trade. This paper investigates the hypothesisthat if we control for distance in the ordinary sense, differences North-South promoteinternational trade. The hypothesis receives ample support. Moreover, the significance of differencesNorth-South survives a battery of robustness tests, concerning period, distinctionsbetween differences in latitude North-North, North-South and South-South, and controls forother measures of differences in factor endowment, such as differences in per capita outputand differences in average temperature, rainfall, and seasonal range in temperature. The impactof differences North-South on bilateral trade has also been falling. This decline, in turn,might be partly responsible for the weakening of the influence of distance that has been occurringsince World War II. This last hypothesis receives confirmation as well. Finally, thepaper studies two country-specific aspects of distance: internal distance and remoteness. Itdoes so by examining the impact of both on the country fixed effects themselves: that is, thosethat emerged earlier. Internal distance turns out to have a far greater impact than remoteness –by an order of ten.

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Bibliographic Info

Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2005-11.

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Length: 30
Date of creation: 2005
Date of revision:
Handle: RePEc:crs:wpaper:2005-11

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References

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  1. Barry Eichengreen & Douglas A. Irwin, 1998. "The Role of History in Bilateral Trade Flows," NBER Chapters, in: The Regionalization of the World Economy, pages 33-62 National Bureau of Economic Research, Inc.
  2. Céline CARRERE & Maurice SCHIFF, 2004. "On the Geography of Trade: Distance is Alive and Well," Working Papers 200423, CERDI.
  3. repec:att:wimass:9713 is not listed on IDEAS
  4. Berthelon, Matias & Freund, Caroline, 2008. "On the conservation of distance in international trade," Journal of International Economics, Elsevier, vol. 75(2), pages 310-320, July.
  5. Edward E. Leamer & James Levinsohn, 1994. "International Trade Theory: The Evidence," NBER Working Papers 4940, National Bureau of Economic Research, Inc.
  6. Holger C. Wolf, 1997. "Patterns of Intra- and Inter-State Trade," NBER Working Papers 5939, National Bureau of Economic Research, Inc.
  7. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
  8. Holger C. Wolf, 2000. "Intranational Home Bias In Trade," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 555-563, November.
  9. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  10. John F. Helliwell & Geneviève Verdier, 2001. "Measuring internal trade distances: a new method applied to estimate provincial border effects in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 1024-1041, November.
  11. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  12. Jacques Melitz, 2003. "Language and Foreign Trade," Working Papers 2003-26, Centre de Recherche en Economie et Statistique.
  13. Simon J. Evenett & Wolfgang Keller, 1998. "On Theories Explaining the Success of the Gravity Equation," NBER Working Papers 6529, National Bureau of Economic Research, Inc.
  14. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
  15. 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.
  16. Volker Nitsch, 2000. "National borders and international trade: evidence from the European Union," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 1091-1105, November.
  17. Hummels, David, 1999. "Toward a Geography of Trade Costs," GTAP Working Papers 1162, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  18. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  19. Shang-Jin Wei, 1996. "Intra-National versus International Trade: How Stubborn are Nations in Global Integration?," NBER Working Papers 5531, National Bureau of Economic Research, Inc.
  20. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
  21. Thierry Mayer & Keith Head, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center.
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Citations

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Cited by:
  1. Julie Regolo, 2013. "Export Diversification: How Much Does the Choice of the Trading Partner Matter?," Research Papers by the Department of Economics, University of Geneva 13072, Département des Sciences Économiques, Université de Genève.
  2. de santis, roberta, 2011. "Impact of environmental regulations on trade in the main EU countries: conflict or synergy?," MPRA Paper 37756, University Library of Munich, Germany.
  3. Martina Lawless, 2010. "Geography and firm exports: new evidence on the nature of sunk costs," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(4), pages 691-707, December.
  4. Correia Leite João, 2008. "The Determinants of Colombian Exports: An Empirical Analysis Using the Gravity Model," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE.
  5. Cardamone, Paola, 2007. "A Survey of the Assessments of the Effectiveness of Preferential Trade Agreements using Gravity Models," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 60(4), pages 421-473.
  6. Pauline Grosjean & Claudia Senik, 2011. "Democracy, Market Liberalization, and Political Preferences," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 365-381, February.
  7. Céline Carrere & Jaime Melo De & John Wilson, 2011. "The Distance Effect and the Regionalization of the Trade of Low-Income Countries," Working Papers halshs-00554326, HAL.
  8. Jamie Partridge & Hartley Furtan, 2008. "Immigration Wave Effects on Canada's Trade Flows," Canadian Public Policy, University of Toronto Press, vol. 34(2), pages 193-214, June.
  9. Richard Frensch, 2008. "Trade liberalisation, adoption costs, and import margins in CEEC and OECD trade," Working Papers 269, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
  10. Kokko, Ari & Gustavsson Tingvall, Patrik, 2012. "The Eurovision Song Contest, Preferences and European Trade," Ratio Working Papers 183, The Ratio Institute.
  11. Michele Fratianni & Francesco Marchionne, 2009. "The Limits to Integration," Mo.Fi.R. Working Papers 20, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  12. Julia Spies & Helena Marques, 2006. "Trade Effects of the Europe Agreements," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 274/2006, Department of Economics, University of Hohenheim, Germany.
  13. Holinski, Nils & Kool, Clemens J.M. & Muysken, Joan, 2012. "The impact of international portfolio composition on consumption risk sharing," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1715-1728.
  14. Luljeta Hajderllari & Kostas Karantininis & Lartey G. Lawson, 2012. "FDI as an Export-Platform: A Gravity Model for the Danish Agri-Food Industry," IFRO Working Paper 2012/7, University of Copenhagen, Department of Food and Resource Economics.
  15. Zhang, Yahua & Findlay, Christopher, 2014. "Air transport policy and its impacts on passenger traffic and tourist flows," Journal of Air Transport Management, Elsevier, vol. 34(C), pages 42-48.
  16. repec:gen:geneem:13032 is not listed on IDEAS
  17. Regolo, Julie, 2013. "Export diversification: How much does the choice of the trading partner matter?," Journal of International Economics, Elsevier, vol. 91(2), pages 329-342.

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