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Declining Distance Effects in International Trade: Some Country-Level Evidence

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  • Michael Bleaney
  • Abelardo Salazar Neaves
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    Abstract

    Technical progress can be expected to reduce transport costs over time, yet most studies of bilateral trade based on the gravity model find distance effects to be increasing rather than decreasing. We investigate countries’ openness to international trade (the ratio of exports plus imports to GDP). We find that trade decreases with geographical remoteness, land area, and lack of access to the sea, all of which are likely to be correlated with transport costs. In contrast to results obtained with log-linear models of bilateral trade, distance effects (remoteness and land area) have declined over time. Trade decreases with population density, and increases with improvements in the terms of trade, investment and a more liberal trade policy. Unlike in the case of bilateral trade, our results are robust to the transformation of the dependent variable.

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    File URL: http://www.nottingham.ac.uk/credit/documents/papers/11-02.pdf
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    Bibliographic Info

    Paper provided by University of Nottingham, CREDIT in its series Discussion Papers with number 11/02.

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    Handle: RePEc:not:notcre:11/02

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    Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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    Web page: http://www.nottingham.ac.uk/economics/
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    Keywords: trade; openness; distance;

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    1. 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.
    2. Simon Guttmann & Anthony Richards, 2004. "Trade Openness: An Australian Perspective," RBA Research Discussion Papers rdp2004-11, Reserve Bank of Australia.
    3. 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.
    4. 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.
    5. David T Coe & Arvind Subramanian & Natalia T Tamirisa, 2007. "The Missing Globalization Puzzle: Evidence of the Declining Importance of Distance," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 34-58, May.
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