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A note on trade costs and distance

Author

Listed:
  • Martina Lawless
  • Karl Whelan

Abstract

One of the most famous and robust findings in international economics is that distance has a strong negative effect on trade. Bernard, Jensen, Redding, and Schott (2007) discuss how this can be decomposed into an effect due to the number of products and an effect due to average exports per product. Using US firm-level data, they show that distance has a strong negative effect on the number of products exported. However, they find that the intensive margin—average sales of individual products—is increasing with distance. We show that this apparently puzzling finding is consistent with models featuring firm heterogeneity in productivity and fixed costs associated with exporting to each market. We also show how evidence of this type can be used to derive new estimates of how distance affects fixed and variable trade costs and how these two costs combine to generate the distance effect on trade.

Suggested Citation

  • Martina Lawless & Karl Whelan, 2007. "A note on trade costs and distance," Working Papers 200716, School of Economics, University College Dublin.
  • Handle: RePEc:ucn:wpaper:200716
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    File URL: http://hdl.handle.net/10197/963
    File Function: First version, 2007
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    References listed on IDEAS

    as
    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, pages 105-130.
    2. Lawless, Martina, 2009. "Firm export dynamics and the geography of trade," Journal of International Economics, Elsevier, pages 245-254.
    3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, pages 691-751.
    4. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, pages 703-725.
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    6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, pages 1695-1725.
    7. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting Trade: Firms, Industries, and Export Destinations," American Economic Review, American Economic Association, pages 150-154.
    8. repec:rus:hseeco:122439 is not listed on IDEAS
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    12. Richard Blundell & Amanda Gosling & Hidehiko Ichimura & Costas Meghir, 2007. "Changes in the Distribution of Male and Female Wages Accounting for Employment Composition Using Bounds," Econometrica, Econometric Society, pages 323-363.
    13. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," Review of Economic Studies, Oxford University Press, pages 31-66.
    14. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, pages 170-192.
    15. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
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    Citations

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    Cited by:

    1. Matthieu Crozet & Keith Head & Thierry Mayer, 2012. "Quality Sorting and Trade: Firm-level Evidence for French Wine," Review of Economic Studies, Oxford University Press, pages 609-644.
    2. Alan Ahearne & Herbert Brücker & Zsolt Darvas & Jakob von Weizsäcker, 2009. "Cyclical dimensions of labour mobility after EU Enlargement," Working Papers 305, Bruegel.
    3. Gábor Békés & Jörn Kleinert & Farid Toubal, 2009. "Spillovers from Multinationals to Heterogeneous Domestic Firms: Evidence from Hungary," The World Economy, Wiley Blackwell, pages 1408-1433.
    4. Békés, Gábor & Muraközy, Balázs, 2012. "Temporary trade and heterogeneous firms," Journal of International Economics, Elsevier, pages 232-246.

    More about this item

    Keywords

    Transportation--Costs; International trade--Costs;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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