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What is really puzzling about the “distance puzzle”

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  • Clément Bosquet

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  • Hervé Boulhol

Abstract

This paper studies the change in the distance elasticity of trade between 1948 and 2006. The elasticity sharply increased, when gravity equations are estimated by ordinary least squares in log form (log-OLS), while it was broadly stable or slightly increasing, depending on the specification, based on Poisson pseudo-maximal likehood (PPML) in levels, a standard estimator. We show that such a divergence is due to the increased heterogeneity of trade flows. However, gamma pseudo-maximal likehood, which should be consistent under the assumptions that make PPML so appealing, generate estimates that are significantly different from PPML and actually closer to log-OLS. We provide tentative solutions to this puzzle. Copyright Kiel Institute 2015

Suggested Citation

  • 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.
  • Handle: RePEc:spr:weltar:v:151:y:2015:i:1:p:1-21
    DOI: 10.1007/s10290-014-0201-x
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. 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.
    3. Marlies Hanna Schütz & Nicole Palan, 2016. "Restructuring of the international clothing and textile trade network: the role of Italy and Portugal," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 5(1), pages 1-29, December.
    4. repec:bla:asiaec:v:31:y:2017:i:3:p:299-323 is not listed on IDEAS
    5. Frank, Jonas, 2018. "The effect of culture on trade over time: New evidence from the GLOBE data set," Hohenheim Discussion Papers in Business, Economics and Social Sciences 18-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    6. Mnasri, Ayman & Nechi, Salem, 2019. "New Approach to Estimating Gravity Models with Heteroscedasticity and Zero Trade Values," MPRA Paper 93426, University Library of Munich, Germany.
    7. Bergstrand, Jeffrey H. & Larch, Mario & Yotov, Yoto V., 2015. "Economic integration agreements, border effects, and distance elasticities in the gravity equation," European Economic Review, Elsevier, vol. 78(C), pages 307-327.
    8. 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; Gravity equations; Pseudo-maximum likelihood methods; F10; F15; C13; C21; C23;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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