Coordination cost and the distance puzzle
AbstractSince 1960, transport costs have been falling, but international exchange did not become less sensitive to distance. We propose the following explanation for this puzzle: in a Dixit-Stiglitz framework, a decrease in transport cost favors trade, which may increase the international specialization (i.e. the number of varieties of intermediate goods used in production). An increased international specialization increases the need for coordination, and makes relatively more important for downstream firms to be close to their suppliers. As a result, trade increases with all partners, but more quickly for neighbors than for distant countries.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 27502.
Date of creation: Dec 2010
Date of revision:
Transport cost ; coordination cost ; international trade ; distance puzzle;
Other versions of this item:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-03 (All new papers)
- NEP-INT-2011-01-03 (International Trade)
- NEP-URE-2011-01-03 (Urban & Real Estate Economics)
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