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Explaining MERCOSUR sectoral exports to the EU: The role of economic and geographical distance

  • Inmaculada Martínez-Zarzoso

    (Ibero-America Institute for Economic Research of the University of Goettingen)

  • Felicitas Nowak-Lehmann D.

    (Ibero-America Institute for Economic Research of the University of Goettingen)

We used a variant of the gravity equation to classify products according to their sensitivity to geographical and economic distance. We argue that products which are highly sensitive to economic distance (proxied with absolute differences in per capita income) and barely sensitive to geographical distance are the best candidates for future trade between the European Union and Mercosur. We estimated our empirical model by applying panel data methodology to allow for trading pair specific effects. In the estimation we made use of two additional explanatory variables which are found to be relevant when explaining trade, namely, infrastructure and exchange rates. Our results support the view that different products have a different sensitivity to distance and highlight the importance of using disaggregated data when analysing international trade flows.

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Paper provided by EconWPA in its series International Trade with number 0309025.

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Length: 25 pages
Date of creation: 29 Sep 2003
Date of revision:
Handle: RePEc:wpa:wuwpit:0309025
Note: Type of Document - Acrobat PDF; pages: 25 ; figures: none
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  1. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January.
  2. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  3. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  4. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
  5. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  6. I-Hui Cheng & Howard J. Wall, 2005. "Controlling for heterogeneity in gravity models of trade and integration," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 49-63.
  7. Diao, Xinshen & Somwaru, Agapi, 2000. "An Inquiry on General Equilibrium Effects of MERCOSUR--An Intertemporal World Model," Journal of Policy Modeling, Elsevier, vol. 22(5), pages 557-588, September.
  8. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
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