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A Note on Trade Costs and Distance

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  • Martina Lawless

    (Central Bank)

  • Karl Whelan

    (University College Dublin)

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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File URL: http://www.ucd.ie/economics/research/papers/2007/WP07.16.pdf
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Bibliographic Info

Paper provided by School Of Economics, University College Dublin in its series Working Papers with number 200716.

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Length: 17 pages
Date of creation: 17 Nov 2007
Date of revision:
Handle: RePEc:ucn:wpaper:200716

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References

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  1. Eckel, Carsten & Neary, J Peter, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," CEPR Discussion Papers 5941, C.E.P.R. Discussion Papers.
  2. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," Harvard Institute of Economic Research Working Papers 1998, Harvard - Institute of Economic Research.
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  4. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  5. Andrew B. Bernard & J. Bradford Jensen & Stephen Redding & Peter K. Schott, 2007. "Firms in International Trade," CEP Discussion Papers dp0795, Centre for Economic Performance, LSE.
  6. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2004. "Comparative advantage and heterogeneous firms," LSE Research Online Documents on Economics 3700, London School of Economics and Political Science, LSE Library.
  7. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  8. Lawless, Martina, 2007. "Firm Export Dynamics and the Geography of Trade," MPRA Paper 10008, University Library of Munich, Germany.
  9. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
  10. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  11. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2006. "Multi-product firms and trade liberalization," LSE Research Online Documents on Economics 3684, London School of Economics and Political Science, LSE Library.
  12. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
  13. repec:rus:hseeco:122439 is not listed on IDEAS
  14. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," NBER Working Papers 10344, National Bureau of Economic Research, Inc.
  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. Békés, Gábor & Muraközy, Balázs, 2012. "Temporary trade and heterogeneous firms," Journal of International Economics, Elsevier, vol. 87(2), pages 232-246.
  3. Balazs Murakozy & Gabor Bekes, 2009. "Temporary Trade," IEHAS Discussion Papers 0909, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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