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The "distance-varying" gravity model in international economics: is the distance an obstacle to trade?

Author

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  • Vêlayoudom Marimoutou

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

  • Denis Peguin

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, Université de Provence - Aix-Marseille 1)

  • Anne Peguin-Feissolle

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we address the problem of the role of the distance between trading partners by assuming the variability of coefficients in a standard gravity model. The distance can be interpreted as an indicator of the cost of entry in a market (a fixed cost): the greater the distance, the higher the entry cost, and the more we need to have a large market to be able to cover a high cost of entry. To explore this idea, the paper uses a method called Flexible Least Squares. By allowing the parameters of the gravity model to vary over the observations, our main result is that the more the partner's GDP is large, the less the distance is an obstacle to trade.

Suggested Citation

  • Vêlayoudom Marimoutou & Denis Peguin & Anne Peguin-Feissolle, 2010. "The "distance-varying" gravity model in international economics: is the distance an obstacle to trade?," Working Papers halshs-00536127, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00536127
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00536127v1
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    References listed on IDEAS

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    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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