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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. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
  2. Larch, Mario & Norbäck, Pehr-Johan & Sirries, Steffen & Urban, Dieter, 2013. "Heterogeneous Firms, Globalization and the Distance Puzzle," Working Paper Series, Research Institute of Industrial Economics 957, Research Institute of Industrial Economics.
  3. Céline CARRERE & Maurice SCHIFF, 2004. "On the Geography of Trade: Distance is Alive and Well," Working Papers 200423, CERDI.
  4. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3744, London School of Economics and Political Science, LSE Library.
  5. Hervé Boulhol & Alain de Serres, 2008. "Have Developed Countries Escaped the Curse of Distance?," OECD Economics Department Working Papers 610, OECD Publishing.
  6. James E. Anderson & Yoto V. Yotov, 2008. "The Changing Incidence of Geography," Boston College Working Papers in Economics, Boston College Department of Economics 698, Boston College Department of Economics.
  7. Brun, Jean-François & Carrère, Céline & de Melo, Jaime & Guillaumont, Patrick, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3500, C.E.P.R. Discussion Papers.
  8. de Sousa, José, 2012. "The currency union effect on trade is decreasing over time," Economics Letters, Elsevier, vol. 117(3), pages 917-920.
  9. 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.
  10. Claudia M. Buch & Jörn Kleinert & Farid Toubal, 2003. "The Distance Puzzle: On the Interpretation of the Distance Coefficient in Gravity Equations," Kiel Working Papers 1159, Kiel Institute for the World Economy.
  11. Lin, Faqin & Sim, Nicholas C.S., 2012. "Death of distance and the distance puzzle," Economics Letters, Elsevier, vol. 116(2), pages 225-228.
  12. 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.
  13. Mayer, Thierry & Zignago, Soledad, 2006. "Notes on CEPII’s distances measures," MPRA Paper 26469, University Library of Munich, Germany.
  14. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(2), pages 441-487, 05.
  15. James E. Anderson & Yoto V. Yotov, 2012. "Gold Standard Gravity," Boston College Working Papers in Economics, Boston College Department of Economics 795, Boston College Department of Economics.
  16. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
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Citations

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Cited by:
  1. 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.
  2. Jeffrey H., Larch, Mario Bergstrand & Yoto V. Yotov, 2013. "Economic Integation Agreements, Border Effects, and Distance Elasticities in the Gravity Equation," CESifo Working Paper Series 4502, CESifo Group Munich.
  3. De Sousa, Jose, 2011. "The currency union effect on trade is decreasing over time," MPRA Paper 35448, University Library of Munich, Germany.
  4. Larch, Mario & Norbäck, Pehr-Johan & Sirries, Steffen & Urban, Dieter, 2013. "Heterogeneous Firms, Globalization and the Distance Puzzle," Working Paper Series, Research Institute of Industrial Economics 957, Research Institute of Industrial Economics.
  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. 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.
  7. 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.

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