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Product Heterogeneity, Intangible Barriers & Distance Decay: The effect of multiple dimensions of distance on trade across different product categories

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Author Info

  • Maureen Lankhuizen

    ()

  • Thomas De Graaff
  • Henri De Groot

Abstract

This paper empirically examines the heterogeneity in the effects of multiple dimensions of distance on trade across detailed product groups. Using finite mixture modelling on bilateral trade data at the 3-digit SITC level, we endogenously group product categories into an, a priori unknown, number of segments based on estimated coefficients of multiple dimensions of distance in the gravity equation. The paper contributes to the literature by offering a new classification of products into homogeneous groups. We find that distance decay functions in a gravity model of international trade at a disaggregate level reveal a complex process that involve location characteristics (comparative and natural advantages, demand patterns or preferences) as well as intrinsic sensitivity of trade to multiple dimensions of distance. Keywords: bilateral trade, gravity models, cultural distance, institutions, product heterogeneity, finite mixture modelling JEL code: F14, F21, F23

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Bibliographic Info

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa12p151.

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Date of creation: Oct 2012
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Handle: RePEc:wiw:wiwrsa:ersa12p151

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  1. Henri L. F. de Groot & Gert-Jan Linders & Piet Rietveld & Uma Subramanian, 2004. "The Institutional Determinants of Bilateral Trade Patterns," Kyklos, Wiley Blackwell, vol. 57(1), pages 103-123, 02.
  2. Jeroen Hinloopen & Charles van Marrewijk, 2012. "Power laws and comparative advantage," Applied Economics, Taylor & Francis Journals, vol. 44(12), pages 1483-1507, April.
  3. Maurice Obstfeld & Kenneth Rogoff & Ben Bernanke & Kenneth Rogoff, . "The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?," Working Paper 32326, Harvard University OpenScholar.
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  7. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan, vol. 19(3), pages 411-432, September.
  8. 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.
  9. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
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  11. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
  12. Friedrich Leisch, . "FlexMix: A General Framework for Finite Mixture Models and Latent Class Regression in R," Journal of Statistical Software, American Statistical Association, vol. 11(i08).
  13. Thomas de Graaff & Jaap Boter & Jan Rouwendal, 2009. "On spatial differences in the attractiveness of Dutch museums," Environment and Planning A, Pion Ltd, London, vol. 41(11), pages 2778-2797, November.
  14. Alan V Deardorff, 2004. "Local Comparative Advantage: Trade Costs and the Pattern of Trade," Working Papers 500, Research Seminar in International Economics, University of Michigan.
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Cited by:
  1. Ceren Ozgen & Thomas de Graff, 2013. "Sorting out the impact of cultural diversity on innovative firms. An empirical analysis of Dutch micro-data," Norface Discussion Paper Series 2013012, Norface Research Programme on Migration, Department of Economics, University College London.

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