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Heterogeneity and the distance puzzle

Listed author(s):
  • Elizaveta Archanskaia

    (OFCE - Observatoire Français des Conjonctures économiques - Institut d'Études Politiques [IEP] - Paris - Fondation Nationale des Sciences Politiques [FNSP])

  • Guillaume Daudin

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)

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.

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Paper provided by HAL in its series Working Papers with number hal-01496258.

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Date of creation: 27 Mar 2017
Handle: RePEc:hal:wpaper:hal-01496258
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