IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Coordination cost and the distance puzzle

  • Sandrine Noblet


  • Antoine Belgodere

The distance puzzle has been wildly discussed in the literature since Leamer and Levinsohn (1995) shed the light on it. This puzzle simply says that “the world is not getting smaller”: distance still matters to account for trade. This is reflected in a decreasing distance of trade (DOT), or in a stable or increasing (negative) elasticity of trade with respect to distance (Disdier and head, 2008). Several explanations of this puzzle have been emphasized in the empirical International Economics literature. Duranton and Storper (2008) contribute to this issue in offering a full theoretical framework to account for this puzzle. They explain that an improvement in transport technology can increase the transport costs, because it creates an incentive to trade higher quality goods. Our paper proposes a new theoretical explanation of this puzzle. This explanation shares with Duranton and Storper's two important characteristics: i) there is a non monotonic relationship between transport cost and trade cost. ii) this phenomenon is due to contract incompleteness. However, the mechanism that we underline is quite different: in our model, based on a Dixit-Stiglitz increasing return to scale technology, a fall in transport cost increases the international division of labour. It follows that input-output linkages require a higher level of coordination. Such a coordination is easier between neighbors than between very distant countries. As a result, trade increases with all partners, but more quickly for neighbors than for distant countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa10p756.

in new window

Date of creation: Sep 2011
Date of revision:
Handle: RePEc:wiw:wiwrsa:ersa10p756
Contact details of provider: Postal: Welthandelsplatz 1, 1020 Vienna, Austria
Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Keith Acheson, 2011. "Globalization," Chapters, in: A Handbook of Cultural Economics, Second Edition, chapter 31 Edward Elgar.
    • Keith Acheson, 2003. "Globalization," Chapters, in: A Handbook of Cultural Economics, chapter 31 Edward Elgar.
  2. 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.
  3. Fink, Carsten & Mattoo, Aaditya & Neagu, Ileana Cristina, 2005. "Assessing the impact of communication costs on international trade," Journal of International Economics, Elsevier, vol. 67(2), pages 428-445, December.
  4. Gilles Duranton & Michael Storper, 2005. "Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs," CEP Discussion Papers dp0683, Centre for Economic Performance, LSE.
  5. Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers 95-05, Michigan - Center for Research on Economic & Social Theory.
  6. Hummels, David, 2001. "Time as a Trade Barrier," GTAP Working Papers 1152, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  7. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  8. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier.
  9. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
  10. Claudia Buch & Jörn Kleinert & Farid Toubal, 2004. "The Distance Puzzle: On the Interpretation of the Distance Coefficient in Gravity Equations," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00311582, HAL.
  11. 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.
  12. Claudia M. Buch & Jörn Kleinert & Farid Toubal, 2003. "The Distance Puzzle: On the Interpretation of the Distance Coefficient in Gravity Equations," Kiel Working Papers 1159, Kiel Institute for the World Economy.
  13. Sebastian Krautheim, 2007. "Gravity and Information: Heterogeneous Firms, Exporter Networks and the 'Distance Puzzle'," Economics Working Papers ECO2007/51, European University Institute.
  14. 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.
  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. Lionel Fontagné & Soledad Zignago, 2007. "A Re-evaluation of the impact of regional agreements on trade patterns," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00270499, HAL.
  17. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa10p756. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.