Disaggregated Trade Flows and the “Missing Globalization Puzzle”
AbstractThis study analyzes the stability of the distance coefficient values over time in the generalized gravity equation of Bergstrand (1989) using both aggregate and disaggregated trade flows among 22 OECD countries recorded for the sample period covering 1970 until 2000. We estimate the gravity equation both in its traditional form as well as by taking into account multilateral resistance as suggested in Baier and Bergstrand (2007). First of all, we find that the missing globalization puzzle, typically observed in empirical gravity models for aggregate trade flows, largely disappears when one estimates a gravity model using disaggregated trade data at the level of individual industries. Secondly, we document that accounting for multilateral price resistance alone can provide some evidence against the missing globalization puzzle. At the same time, the results obtained for a traditional specification of the gravity equation emphasizing the importance of disaggregated trade flows in explaining the distance puzzle remain largely intact. We also illustrate how the aggregation bias could have contributed to a typical finding of a non-declining trade-deterring role of distance in the existing literature.
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Bibliographic InfoPaper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 08-209.
Length: 23 pages
Date of creation: Oct 2008
Date of revision:
Gravity model; missing globalization puzzle; distance coefficient; multilateral resistance;
Other versions of this item:
- Boriss Siliverstovs & Dieter Schumacher, 2008. "Disaggregated Trade Flows and the "Missing Globalization Puzzle"," Economie Internationale, CEPII research center, issue 115, pages 141-164.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-11-04 (All new papers)
- NEP-INT-2008-11-04 (International Trade)
- NEP-OPM-2008-11-04 (Open Economy Macroeconomic)
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