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Has Distance Died? Evidence from a Panel Gravity Model

  • Jean-François BRUN


    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Céline CARRERE


    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))



    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Jaime MELO DE

This paper reports panel gravity estimates of aggregate bilateral trade for 130 countries over the period 1962-96 in which the coefficient of distance is allowed to change over time. In a standard specification in which transport costs are proxied by distance only, it is found paradoxically that the absolute value of the elasticity of bilateral trade to distance has been significantly increasing.The result is attributed to a relatively larger decline in costs independent of distance (such as handling) than in distance-related costs (e.g. oil price). An extended version of the model that controls for these two factors eliminates this positive trend without reversing it. However, when the sample is split into two groups ("rich-rich" and "poor-poor"), the paradox is maintained for the "poor-poor" group. While not conclusive, these results are consistent with the view that poor countries may have been marginalized by the current wave of globalization.

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Paper provided by CERDI in its series Working Papers with number 200215.

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Length: 33
Date of creation: 2002
Date of revision:
Publication status: Published in World Bank Economic Review, 2005, pages 99-120
Handle: RePEc:cdi:wpaper:180
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  1. Yves Guillotin & Patrick Sevestre, 1994. "Estimations de fonctions de gains sur données de panel : endogéneité du capital humain et effets de la sélection," Économie et Prévision, Programme National Persée, vol. 116(5), pages 119-135.
  2. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
  3. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  4. David L. Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  5. Patrick GUILLAUMONT & Jean-François BRUN & Jaime MELO DE, 1998. "La distance abolie ? Critères et mesure de la mondialisation du commerce extérieur," Working Papers 199830, CERDI.
  6. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. repec:cdi:wpaper:857 is not listed on IDEAS
  8. David Hummels & Georg Schaur, 2012. "Time as a Trade Barrier," NBER Working Papers 17758, National Bureau of Economic Research, Inc.
  9. Dollar, David & Micco, Alejandro & Clark, Ximena, 2002. "Maritime transport costs and port efficiency," Policy Research Working Paper Series 2781, The World Bank.
  10. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
  11. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-53, February.
  12. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
  13. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
  14. Breusch, Trevor S & Mizon, Grayham E & Schmidt, Peter, 1989. "Efficient Estimation Using Panel Data," Econometrica, Econometric Society, vol. 57(3), pages 695-700, May.
  15. Peter Egger & Michael Pfaffermayr, 2003. "The proper panel econometric specification of the gravity equation: A three-way model with bilateral interaction effects," Empirical Economics, Springer, vol. 28(3), pages 571-580, July.
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