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Has Distance Died? Evidence from a Panel Gravity Model

Author Info

  • Brun, Jean-François
  • Carrère, Céline
  • de Melo, Jaime
  • Guillaumont, Patrick

Abstract

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 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 C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3500.

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Date of creation: Aug 2002
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Handle: RePEc:cpr:ceprdp:3500
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Keywords: distance; globalization; panel gravity model; transport costs;

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Find related papers by JEL classification:
  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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  1. 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.
  2. Jean-François BRUN & Jaime MELO DE & Patrick GUILLAUMONT, 1998. "La distance abolie ? Critères et mesure de la mondialisation du commerce extérieur," Working Papers 199830, CERDI.
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  7. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
  8. Hummels, David, 2001. "Time as a Trade Barrier," GTAP Working Papers 1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  9. repec:cdi:wpaper:857 is not listed on IDEAS
  10. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
  11. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. 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.
  13. 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.
  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. Dollar, David & Micco, Alejandro & Clark, Ximena, 2002. "Maritime transport costs and port efficiency," Policy Research Working Paper Series 2781, The World Bank.
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