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A Simple Solution to the Distance Puzzle in International Trade

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  • Yotov, Yoto

    ()
    (Department of Economics & International Business LeBow College of Business Drexel University)

Abstract

Despite ample anecdotal evidence for intensive international integration, the gravity literature of international trade fails to deliver consistent empirical support for globalization and for diminishing effects of distance on bilateral trade. Capitalizing on the properties of the structural gravity model, I propose a simple and intuitive solution to the alleged distance puzzle. Contrary to existing gravity estimates of distance effects that are persistent or increasing over time, I offer robust empirical evidence that the impact of distance on international trade in the world has fallen by close to 50% over the period 1965-2005.

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File URL: http://dl.dropboxusercontent.com/u/162210677/RePEc/drx/wpaper/LeBow%20College%20of%20Business%20Working%20Paper%202012-6.pdf
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Bibliographic Info

Paper provided by LeBow College of Business, Drexel University in its series School of Economics Working Paper Series with number 2012-6.

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Length: 11 pages
Date of creation: 19 Apr 2012
Date of revision:
Handle: RePEc:ris:drxlwp:2012_006

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Web page: http://www.lebow.drexel.edu/
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Keywords: Structural Gravity; Distance Puzzle; (Missing) Globalization;

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References

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  1. James E. Anderson & Yoto V. Yotov, 2012. "Gold Standard Gravity," Boston College Working Papers in Economics 795, Boston College Department of Economics.
  2. Jean-François Brun & Céline Carrère & Patrick Guillaumont & Jaime de Melo, 2005. "Has Distance Died? Evidence from a Panel Gravity Model," World Bank Economic Review, World Bank Group, vol. 19(1), pages 99-120.
  3. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  4. Clément Bosquet & Hervé Boulhol, 2009. "Gravity, log of gravity and the "distance puzzle"," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00401386, HAL.
  5. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2004. "The distance puzzle: on the interpretation of the distance coefficient in gravity equations," Economics Letters, Elsevier, vol. 83(3), pages 293-298, June.
  6. Santos Silva, Joao & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  7. James E. Anderson & Yoto V. Yotov, 2008. "The Changing Incidence of Geography," Boston College Working Papers in Economics 698, Boston College Department of Economics.
  8. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
  9. De Sousa, Jose, 2011. "The currency union effect on trade is decreasing over time," MPRA Paper 35448, University Library of Munich, Germany.
  10. Carrere, Celine & Schiff, Maurice, 2004. "On the geography of trade : distance is alive and well," Policy Research Working Paper Series 3206, The World Bank.
  11. Thierry Mayer & Soledad Zignago, 2011. "Notes on CEPII’s distances measures: The GeoDist database," Working Papers 2011-25, CEPII research center.
  12. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  13. Anne-Célia Disdier & Keith Head, 2004. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," Development Working Papers 186, Centro Studi Luca d\'Agliano, University of Milano.
  14. Larch, Mario & Norbäck, Pehr-Johan & Sirries, Steffen & Urban, Dieter, 2013. "Heterogeneous Firms, Globalization and the Distance Puzzle," Working Paper Series 957, Research Institute of Industrial Economics.
  15. Hervé Boulhol & Alain de Serres, 2008. "Have Developed Countries Escaped the Curse of Distance?," OECD Economics Department Working Papers 610, OECD Publishing.
  16. Lin, Faqin & Sim, Nicholas C.S., 2012. "Death of distance and the distance puzzle," Economics Letters, Elsevier, vol. 116(2), pages 225-228.
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Cited by:
  1. Larch, Mario & Norbäck, Pehr-Johan & Sirries, Steffen & Urban, Dieter, 2013. "Heterogeneous Firms, Globalization and the Distance Puzzle," Working Paper Series 957, Research Institute of Industrial Economics.
  2. Bergstrand, Jeffrey & Larch, Mario & Yotov, Yoto, 2013. "Economic Integration Agreements, Border Effects, and Distance Elasticities in the Gravity Equation," School of Economics Working Paper Series 2013-7, LeBow College of Business, Drexel University.
  3. Chiarucci, Riccardo & Ruzzenenti, Franco & Loffredo, Maria I., 2014. "Detecting spatial homogeneity in the World Trade Web with Detrended Fluctuation Analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 401(C), pages 1-7.
  4. De Sousa, Jose, 2011. "The currency union effect on trade is decreasing over time," MPRA Paper 35448, University Library of Munich, Germany.
  5. Riccardo Chiarucci & Franco Ruzzenenti & Maria I. Loffredo, 2013. "Detecting spatial homogeneity in the world trade web with Detrended Fluctuation Analysis," Papers 1308.0526, arXiv.org, revised Nov 2013.
  6. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2013. "The Distance Effects on the Intensive and Extensive Margins of Trade Over Time," Discussion Papers Series 488, School of Economics, University of Queensland, Australia.
  7. Bruna, Fernando & Faíña, Andrés & Lopez-Rodriguez, Jesus, 2014. "Market Potential and the curse of distance in European regions," MPRA Paper 56747, University Library of Munich, Germany.

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