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Heterogeneity and distance puzzle

Author

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  • Guillaume Daudin

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Elizaveta Archanskaia

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

This paper shows that reduced heterogeneity of exporter-specific goods can provide a direct explanation of the distance puzzle. Using COMTRADE 4-digit bilateral trade data we find that the elasticity of trade to distance has increased by 8% from 1962 to 2009. Theoretical foundations of the gravity equation indicate that the distance coefficient is the product of the elasticity of trade costs to distance and a measure of heterogeneity, e.g. the substitution elasticity between exporter-specific goods in the Armington framework. This parameter has increased by 13% from 1962 to 2009. The evolution of the distance coefficient is thus compatible with a 4% reduction in the elasticity of trade costs to distance.

Suggested Citation

  • Guillaume Daudin & Elizaveta Archanskaia, 2012. "Heterogeneity and distance puzzle," Working Papers hal-01073683, HAL.
  • Handle: RePEc:hal:wpaper:hal-01073683
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    Cited by:

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    4. Egger, Peter & Nigai, Sergey, 2015. "Structural Gravity with Dummies Only," CEPR Discussion Papers 10427, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    gravity equation; distance puzzle; trade elasticity; trade costs;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative

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