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Heterogeneity and the distance puzzle

Archanskaia, Elizaveta; Daudin, Guillaume (2012), Heterogeneity and the distance puzzle. https://basepub.dauphine.fr/handle/123456789/10085

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Daudin Archanskaia - Distance Puzzle - OFCE Working Paper.pdf (482.7Kb)
Type
Document de travail / Working paper
Date
2012
Publisher
OFCE
Series title
OFCE Working Papers
Series number
17
Published in
Paris
Pages
40
Metadata
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Author(s)
Archanskaia, Elizaveta

Daudin, Guillaume
Abstract (EN)
This paper shows that reduced heterogeneity of exporter-specific goods can provide a direct explanation of the distance puzzle. Using COMTRADE 4-digit bilateral trade data we find that the elasticity of trade to distance has increased by 8% from 1962 to 2009. Theoretical foundations of the gravity equation indicate that the distance coefficient is the product of the elasticity of trade costs to distance and a measure of heterogeneity, e.g. the substitution elasticity between exporter-specific goods in the Armington framework. This parameter has increased by 13% from 1962 to 2009. The evolution of the distance coefficient is thus compatible with a 4% reduction in the elasticity of trade costs to distance.
Subjects / Keywords
Gravity equation; distance puzzle; trade elasticity; trade costs
JEL
F15 - Economic Integration
N70 - General, International, or Comparative

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