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Death of distance and the distance puzzle

Author

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  • Lin, Faqin
  • Sim, Nicholas C.S.

Abstract

Despite the onset of globalization, year-by-year cross-country regressions of the gravity model usually suggest that the impediment of geographical distance on bilateral trade is rising, and not declining, over time. This effect of distance is dubbed the distance puzzle. In this paper, we argue that prima facie evidence of the distance effect from the year-by-year regressions may not be a good indicator of the true impact of distance on trade.

Suggested Citation

  • Lin, Faqin & Sim, Nicholas C.S., 2012. "Death of distance and the distance puzzle," Economics Letters, Elsevier, vol. 116(2), pages 225-228.
  • Handle: RePEc:eee:ecolet:v:116:y:2012:i:2:p:225-228
    DOI: 10.1016/j.econlet.2012.03.004
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    References listed on IDEAS

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    1. 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.
    2. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
    3. Jacks, David S., 2009. "On the death of distance and borders: Evidence from the nineteenth century," Economics Letters, Elsevier, vol. 105(3), pages 230-233, December.
    4. Thierry Mayer, 2008. "Market Potential and Development," Sciences Po publications 6798, Sciences Po.
    5. 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.
    6. 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.
    7. Céline Carrère & Maurice Schiff, 2005. "On the Geography of Trade. Distance is Alive and Well," Revue économique, Presses de Sciences-Po, vol. 56(6), pages 1249-1274.
    8. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    9. Berthelon, Matias & Freund, Caroline, 2008. "On the conservation of distance in international trade," Journal of International Economics, Elsevier, vol. 75(2), pages 310-320, July.
    10. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
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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. Lin, Faqin, 2013. "Are distance effects really a puzzle?," Economic Modelling, Elsevier, vol. 31(C), pages 684-689.
    3. Samuel Standaert & Stijn Ronsse & Benjamin Vandermarliere, 2016. "Historical trade integration: globalization and the distance puzzle in the long twentieth century," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 10(2), pages 225-250, May.
    4. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2016. "The distance effects on the intensive and extensive margins of trade over time," Empirical Economics, Springer, vol. 50(2), pages 253-278, March.
    5. Borchert, Ingo & Yotov, Yoto V., 2017. "Distance, globalization, and international trade," Economics Letters, Elsevier, vol. 153(C), pages 32-38.
    6. Orestis VRAVOSINOS, 2017. "On the life and death of distance," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 207-214, Spring.
    7. repec:agr:journl:v:xxiv:y:2017:i:1(610):p:207-214 is not listed on IDEAS
    8. repec:elg:eechap:17028_2 is not listed on IDEAS
    9. Bassem Kahouli & Anis Omri & Anissa Chaibi, 2014. "Environmental Regulations, Trade, and Foreign Direct Investment: Evidence from Gravity Equations," Working Papers 2014-189, Department of Research, Ipag Business School.
    10. Brei, Michael & von Peter, Goetz, 2018. "The distance effect in banking and trade," Journal of International Money and Finance, Elsevier, vol. 81(C), pages 116-137.
    11. Piermartini, Roberta & Yotov, Yoto, 2016. "Estimating Trade Policy Effects with Structural Gravity," School of Economics Working Paper Series 2016-10, LeBow College of Business, Drexel University.
    12. repec:eee:riibaf:v:42:y:2017:i:c:p:353-364 is not listed on IDEAS
    13. Yotov, Yoto V., 2012. "A simple solution to the distance puzzle in international trade," Economics Letters, Elsevier, vol. 117(3), pages 794-798.
    14. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters,in: Handbook of International Trade and Transportation, chapter 2, pages 15-78 Edward Elgar Publishing.
    15. 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.
    16. Hejazi, Mina & Grant, Jason H. & Peterson, Everett, 2017. "Tariff Changes and the Margins of Trade: A Case Study of U.S. Agri-Food Imports," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(1), January.
    17. Clément Bosquet & Hervé Boulhol, 2015. "What is really puzzling about the “distance puzzle”," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 1-21, February.
    18. Samuel Standaert & Stijn Ronsse & Benjamin Vandermarliere, 2014. "Historical trade integration: Globalization and the distance puzzle in the long 20th century," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/897, Ghent University, Faculty of Economics and Business Administration.

    More about this item

    Keywords

    Distance puzzle; Year-by-year regression; Extensive margin; Intensive margin;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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