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The Missing Globalization Puzzle

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Author Info
Rikhil Bhavnani
David T. Coe
Arvind Subramanian
Natalia T. Tamirisa

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Abstract

The failure of declining trade-related costs to be reflected in estimates of the standard gravity model of bilateral trade might be called the "missing globalization puzzle." This puzzle is most apparent in the estimated distance coefficients found in the literature, which show no evidence of declining in absolute value over time. In contrast, we find evidence of globalization, on both cross-section and panel data, reflected in a variety of measures of geography. Our estimation procedure is consistent with recent theoretical developments that emphasize the importance of relative costs for determining bilateral trade patterns. But the main reason our findings differ from previous studies is our nonlinear specification, which has a number of advantages over the standard log-linear specification.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/171.

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Length: 30 pages
Date of creation: 18 Oct 2002
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Handle: RePEc:imf:imfwpa:02/171

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Keywords: Globalization ; Trade ; Economic models ;

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References listed on IDEAS
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  1. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Coe, David T & Hoffmaister, Alexander W, 1999. "North-South Trade: Is Africa Unusual?," Journal of African Economies, Oxford University Press, vol. 8(2), pages 228-56, July.
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  3. Hummels, David, 2001. "Time as a Trade Barrier," GTAP Working Papers 1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University. [Downloadable!]
  4. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June. [Downloadable!] (restricted)
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  5. Greene, William H, 1981. "On the Asymptotic Bias of the Ordinary Least Squares Estimator of the Tobit Model," Econometrica, Econometric Society, vol. 49(2), pages 505-13, March. [Downloadable!] (restricted)
  6. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 327-377. [Downloadable!]
  7. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc. [Downloadable!]
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  8. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March. [Downloadable!] (restricted)
  9. Jeffrey A. Frankel & Shang-Jin Wei, 1998. "Regionalization of World Trade and Currencies: Economics and Politics," NBER Chapters, in: The Regionalization of the World Economy, pages 189-226 National Bureau of Economic Research, Inc. [Downloadable!]
  10. Jeffrey A. Frankel & Andrew K. Rose, 2000. "Estimating the Effect of Currency Unions on Trade and Output," NBER Working Papers 7857, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier. [Downloadable!] (restricted)
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  12. James E. Anderson & Douglas Marcouiller, 2002. "Insecurity And The Pattern Of Trade: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 342-352, May. [Downloadable!] (restricted)
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  13. 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. [Downloadable!]
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  14. Brun, Jean-François & Carrère, Céline & de Melo, Jaime & Guillaumont, Patrick, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," CEPR Discussion Papers 3500, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. Wang, Z.K. & Winters, L.A., 1992. "The Trading Potential of Eastern Europe," Discussion Papers 92-21, Department of Economics, University of Birmingham.
  16. Soloaga, Isidro & Alan Wintersb, L., 2001. "Regionalism in the nineties: what effect on trade?," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 1-29, March. [Downloadable!] (restricted)
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(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. Ludvig Söderling, 2005. "Is the Middle East and North Africa Region Achieving Its Trade Potential?," IMF Working Papers 05/90, International Monetary Fund. [Downloadable!]
  2. repec:bep:eaptop:v:7:y:2007:i:1:p:1557-1557 is not listed on IDEAS
  3. 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!]
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  4. Francois, Joseph & Manchin, Miriam, 2007. "Institutions, infrastructure, and trade," Policy Research Working Paper Series 4152, The World Bank. [Downloadable!]
    Other versions:
  5. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. James E. Anderson & Yoto V. Yotov, 2008. "The Changing Incidence of Geography," NBER Working Papers 14423, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Simon Guttmann & Anthony Richards, 2004. "Trade Openness: An Australian Perspective," RBA Research Discussion Papers rdp2004-11, Reserve Bank of Australia. [Downloadable!]
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  8. 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:
  9. Barry Bosworth, 2008. "Trading with Asia’s Giants," Working Papers id:1615, esocialsciences.com. [Downloadable!]
  10. Berthelon, Matias & Freund, Caroline, 2004. "On the conservation of distance in international trade," Policy Research Working Paper Series 3293, The World Bank. [Downloadable!]
    Other versions:
  11. Agostino, Maria Rosaria & Aiello, Francesco & Cardamone, Paola, 2007. "Analyzing the Impact of Trade Preferences in Gravity Models. Does Aggregation Matter?," Working Papers 7294, TRADEAG - Agricultural Trade Agreements. [Downloadable!]
  12. Boriss Siliverstovs & Dieter Schumacher, 2008. "Disaggregated Trade Flows and the “Missing Globalization Puzzle”," KOF Working papers 08-209, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
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  13. 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!]
  14. Céline CARRERE & Maurice SCHIFF, 2004. "On the Geography of Trade: Distance is Alive and Well," Working Papers 200423, CERDI. [Downloadable!]
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  15. Maarten Bosker & Harry Garretsen, 2007. "Trade Costs, Market Access and Economic Geography: Why the Empirical Specification of Trade Costs Matters," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  16. Barry Bosworth & Susan M. Collins & Aaron Flaaen, . "Trading with Asia's Giants," Indian Council for Research on International Economic Relations, New Delhi Working Papers 220, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  17. Theresa M. Greaney, 2004. "Measuring network effects on trade: are Japanese affiliates distinctive?," Hi-Stat Discussion Paper Series d04-57, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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