On the Conservation of Distance in International Trade
The volume of world trade has grown more than twice as fast as real world income since 1980. Surprisingly, the effect of distance on trade has increased during this period. It could be that countries are trading greater volumes of goods that are hi...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2004/05/4270411/conservation-distance-international-trade http://hdl.handle.net/10986/13888 |
| Summary: | The volume of world trade has grown more
than twice as fast as real world income since 1980.
Surprisingly, the effect of distance on trade has increased
during this period. It could be that countries are trading
greater volumes of goods that are highly sensitive to
distance. An alternative explanation is that distance has
become more import for a significant share of goods. Using
highly disaggregated bilateral trade data, the authors find
that adjustment in the composition of trade has not
influenced the way in which distance affects trade. In
contrast, for about 25 percent of industries, distance has
become more important. This implies that the increased
distance sensitivity of trade is a result of a change in
relative trade costs that affects many industries, as
opposed to a shift to more distance-sensitive products. The
authors also find that homogeneous products are twice as
likely to have become more distance sensitive as compared
with differentiated goods. This is consistent with the
hypothesis that falling search costs, resulting from
improvements in transport and communications, are relatively
more important for differentiated goods. The results offer
no evidence of the "death of distance." Rather,
they suggest that distance-related relative trade costs have
remained unchanged or shifted in favor of proximate markets. |
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