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Coordination cost and the distance puzzle

  • Noblet, Sandrine
  • Belgodere, Antoine

Since 1960, transport costs have been falling, but international exchange did not become less sensitive to distance. We propose the following explanation for this puzzle: in a Dixit-Stiglitz framework, a decrease in transport cost favors trade, which may increase the international specialization (i.e. the number of varieties of intermediate goods used in production). An increased international specialization increases the need for coordination, and makes relatively more important for downstream firms to be close to their suppliers. As a result, trade increases with all partners, but more quickly for neighbors than for distant countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27502.

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Date of creation: Dec 2010
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Handle: RePEc:pra:mprapa:27502
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  1. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
  2. David Hummels & Georg Schaur, 2012. "Time as a Trade Barrier," NBER Working Papers 17758, National Bureau of Economic Research, Inc.
  3. Sebastian Krautheim, 2007. "Gravity and Information: Heterogeneous Firms, Exporter Networks and the 'Distance Puzzle'," Economics Working Papers ECO2007/51, European University Institute.
  4. Fink, Carsten & Mattoo, Aaditya & Neagu, Ileana Cristina, 2002. "Assessing the impact of communication costs on international trade," Policy Research Working Paper Series 2929, The World Bank.
  5. Anne-Célia Disdier & Keith Head, 2004. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," Development Working Papers 186, Centro Studi Luca d\'Agliano, University of Milano.
  6. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
  7. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  8. Brun, Jean-François & Carrère, Céline & de Melo, Jaime & Guillaumont, Patrick, 2002. "Has Distance Died? Evidence from a Panel Gravity Model," CEPR Discussion Papers 3500, C.E.P.R. Discussion Papers.
  9. Cletus C. Coughlin, 2004. "The increasing importance of proximity for exports from U.S. states," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 1-18.
  10. Edward E. Leamer & James Levinsohn, 1994. "International Trade Theory: The Evidence," NBER Working Papers 4940, National Bureau of Economic Research, Inc.
  11. Gilles Duranton & Michael Storper, 2008. "Rising trade costs? Agglomeration and trade with endogenous transaction costs," Canadian Journal of Economics, Canadian Economics Association, vol. 41(1), pages 292-319, February.
  12. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2004. "The distance puzzle: on the interpretation of the distance coefficient in gravity equations," Economics Letters, Elsevier, vol. 83(3), pages 293-298, June.
  13. Lionel Fontagne & Soledad Zignago, 2007. "A Re-evaluation of the Impact of Regional Agreements on Trade Patterns," Economie Internationale, CEPII research center, issue 109, pages 31-51.
  14. A.L. Keith Acheson, 2010. "Globalization," Carleton Economic Papers 10-01, Carleton University, Department of Economics.
  15. Rikhil Bhavnani & Natalia T. Tamirisa & Arvind Subramanian & David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 02/171, International Monetary Fund.
  16. David T Coe & Arvind Subramanian & Natalia T Tamirisa, 2007. "The Missing Globalization Puzzle: Evidence of the Declining Importance of Distance," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 34-58, May.
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