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Gravity and Information: Heterogeneous Firms, Exporter Networks and the 'Distance Puzzle'

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  • Sebastian Krautheim

Abstract

Distance effects in empirical gravity equations appear to be too high to be explained by transport costs alone. Moreover, despite the strong and ongoing reduction of transport costs, the estimated coefficients are rather increasing than decreasing over the last six decades. To address the two dimensions of this 'distance puzzle', this paper proposes a model of international trade in which heterogeneous firms create informational networks to reduce their fixed costs of exporting. Since the variable trade cost (distance) affects the number of exporters, which in turn affects the available information, the fixed cost of exporting is endogenously increasing in distance. The model thus delivers higher predictions for the level of distance effects and, in addition, a quality improvement of the networks over time implies increasing distance elasticities. Major implications of the model regarding the effects of firm heterogeneity and market structure on distance effects are supported by existing empirical evidence. An empirical gravity equation is used to estimate the effect of exporter networks on distance coefficients. In the light of the results the empirical findings on the role of distance on international trade appear considerably less puzzling.

Suggested Citation

  • Sebastian Krautheim, 2007. "Gravity and Information: Heterogeneous Firms, Exporter Networks and the 'Distance Puzzle'," Economics Working Papers ECO2007/51, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2007/51
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    Cited by:

    1. Florian Mayneris & Sandra Poncet, 2011. "French Firms at the Conquest of Asian Markets: The Role of Export Spillovers," Working Papers 2011-31, CEPII research center.
    2. Dimitra Petropoulou, 2007. "Information Costs, Networks and Intermediation in International Trade," Economics Series Working Papers 370, University of Oxford, Department of Economics.
    3. Davide Sala & Erdal Yalcin, 2012. "Export Experience of Managers and the Internationalization of Firms," ifo Working Paper Series 139, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    4. Noblet, Sandrine & Belgodere, Antoine, 2010. "Coordination cost and the distance puzzle," MPRA Paper 27502, University Library of Munich, Germany.
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    6. Koenig, Pamina & Mayneris, Florian & Poncet, Sandra, 2010. "Local export spillovers in France," European Economic Review, Elsevier, pages 622-641.
    7. MAYNERIS, Florian & PONCET, Sandra, 2011. "Entry on difficult export markets by Chinese domestic firms: the role of foreign export spillovers," CORE Discussion Papers 2011063, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Gabriel Felbermayr & Benjamin Jung, 2011. "Trade Intermediation and the Organization of Exporters," Review of International Economics, Wiley Blackwell, pages 634-648.
    9. Pamina Koenig & Florian Mayneris & Sandra Poncet, 2010. "Économies d’agglomération à l’exportation et difficulté d’accès aux marchés," Économie et Statistique, Programme National Persée, vol. 435(1), pages 85-103.
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    11. Florian Mayneris & Sandra Poncet, 2010. "Export Performance of China's Domestic Firms: the Role of Foreign Export Spillovers," Working Papers 2010-32, CEPII research center.
    12. Krautheim, Sebastian, 2012. "Heterogeneous firms, exporter networks and the effect of distance on international trade," Journal of International Economics, Elsevier, vol. 87(1), pages 27-35.
    13. Hu, Cui & Tan, Yong, 2016. "Export spillovers and export performance in China," China Economic Review, Elsevier, vol. 41(C), pages 75-89.
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    23. Cardoso-Vargas, Carlos-Enrique, 2017. "Does the Type of Neighbor Matter? Heterogeneous Export Spillovers on Domestic Companies in Mexico," MPRA Paper 79929, University Library of Munich, Germany.

    More about this item

    Keywords

    gravity; heterogeneous firms; networks; trade costs; distance; information;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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