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A Note on Trade Costs and Distance

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  • Lawless, Martina
  • Whelan, Karl

Abstract

One of the most famous and robust findings in international economics is that distance has a strong negative effect on trade. Bernard, Jensen, Redding, and Schott (2007) discuss how this can be decomposed into an effect due to the number of products and an effect due to average exports per product. Using US firm-level data, they show that distance has a strong negative effect on the number of products exported. However, they find that the intensive margin—average sales of individual products—is increasing with distance. We show that this apparently puzzling finding is consistent with models featuring firm heterogeneity in productivity and fixed costs associated with exporting to each market. We also show how evidence of this type can be used to derive new estimates of how distance affects fixed and variable trade costs and how these two costs combine to generate the distance effect on trade.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5804.

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Date of creation: Aug 2007
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Handle: RePEc:pra:mprapa:5804

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  1. Helpman, Elhanan & Melitz, Marc J & Yeaple, Stephen R, 2003. "Export versus FDI," CEPR Discussion Papers 3741, C.E.P.R. Discussion Papers.
  2. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," CEP Discussion Papers dp0769, Centre for Economic Performance, LSE.
  3. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, vol. 123(2), pages 441-487, 05.
  4. Carsten Eckel & J Peter Neary, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Working Papers 200608, School Of Economics, University College Dublin.
  5. 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.
  6. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," NBER Working Papers 13054, National Bureau of Economic Research, Inc.
  7. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative Advantage and Heterogeneous Firms," CEP Discussion Papers dp0643, Centre for Economic Performance, LSE.
  8. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  9. Lawless, Martina, 2007. "Firm Export Dynamics and the Geography of Trade," MPRA Paper 10008, University Library of Munich, Germany.
  10. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," NBER Working Papers 10344, National Bureau of Economic Research, Inc.
  11. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
  12. repec:rus:hseeco:122439 is not listed on IDEAS
  13. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  14. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  15. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
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Cited by:
  1. Crozet, Matthieu & Head, Keith & Mayer, Thierry, 2009. "Quality Sorting And Trade: Firm-Level Evidence For French Wine," Working Papers 53883, American Association of Wine Economists.
  2. Balazs Murakozy & Gabor Bekes, 2009. "Temporary Trade," IEHAS Discussion Papers 0909, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Békés, Gábor & Muraközy, Balázs, 2012. "Temporary trade and heterogeneous firms," Journal of International Economics, Elsevier, vol. 87(2), pages 232-246.

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