Has Distance Died? : Evidence from a Panel Gravity Model

The estimated coefficient of distance on the volume of trade is generally found to increase rather than decrease through time using the traditional gravity model of trade. This distance puzzle proved robust to several ad hoc versions of the model u...

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Bibliographic Details
Main Authors:	Brun, Jean-Francois, Carrere, Celine, Guillaumont, Patrick, de Melo, Jaime
Format:	Journal Article
Language:	English en_US
Published:	Published by Oxford University Press on behalf of the World Bank 2014
Subjects:	ABSOLUTE VALUE AGGREGATE TRADE BILATERAL IMPORTS BILATERAL TRADE BILATERAL TRADE DATA CD COEFFICIENT ESTIMATE COMMODITY COMMON COLONIZER COMMON CURRENCY COMMON MARKET CONSTANT ELASTICITY OF SUBSTITUTION CONSUMPTION PRICE INDEX CONTRACT ENFORCEMENT COST OF TRANSPORT COUNTRY DUMMY COUNTRY DUMMY VARIABLES COUNTRY FIXED EFFECTS CURRENCY CURRENCY UNION CURRENCY UNIONS CURRENCY VALUE DEPENDENT VARIABLE DEPRECIATION DEVELOPING ECONOMIES DUMMY VARIABLE DUMMY VARIABLES ECONOMETRICS ECONOMIC POLICY ECONOMIC RESEARCH ECONOMICS ELASTICITIES ELASTICITY ELASTICITY OF DEMAND ELASTICITY OF SUBSTITUTION ELASTICITY OF TRADE ELASTICITY OF ~ ~ SUBSTITUTION ENDOGENOUS VARIABLES ERROR TERM EXCHANGE RATE UNCERTAINTY EXCHANGE RATE VOLATILITY EXOGENOUS VARIABLES EXPLANATORY VARIABLES EXPORTER EXPORTERS EXPORTS FACTOR ENDOWMENTS FEDERAL RESERVE FEDERAL RESERVE BANK FIXED EFFECTS FOREIGN DIRECT INVESTMENT FREE TRADE FREE TRADE AREA FREIGHT FREIGHT COSTS GDP GDP DEFLATOR GLOBALIZATION GRAVITY EQUATION GRAVITY MODEL GRAVITY MODELS GROSS DOMESTIC PRODUCT HIGH-INCOME COUNTRIES IMPORT INCOME INCOME ELASTICITY INCOME ELASTICITY OF DEMAND INCOME GROWTH INCREASING RETURNS INDUSTRIAL COUNTRIES INDUSTRIALIZATION INSTRUMENTAL VARIABLE INSTRUMENTAL VARIABLES INSURANCE INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL MACROECONOMICS INTERNATIONAL TRADE LAND TRANSPORT LOW-INCOME COUNTRIES MACROECONOMICS MARGINAL COST MARITIME TRANSPORT MODE OF TRANSPORT MONETARY UNION MONOPOLISTIC COMPETITION MULTILATERAL TRADE MULTILATERAL TRADE ARRANGEMENTS OIL PRICE OIL PRICES PATTERN OF TRADE PER CAPITA INCOME POLITICAL ECONOMY PRICE INDEX PRICE INDEXES PRICE OF OIL PRICE RATIOS PRIMARY COMMODITIES RAILWAYS REAL EFFECTIVE EXCHANGE RATE REAL EXCHANGE RATE REAL EXCHANGE RATES REGIONALISM REGIONALIZATION RELATIVE PRICES ROADS ROBUSTNESS CHECKS ROUTES SERIAL CORRELATION SMALL COUNTRIES SPECIALIZATION SUPPLY SIDE TECHNOLOGICAL CHANGES TOTAL EXPORTS TRADE AGREEMENTS TRADE BARRIER TRADE BARRIERS TRADE COSTS TRADE MORE TRADE PARTNER TRADE PATTERNS TRADE RELATIONSHIPS TRADE STATISTICS TRADING BLOCS TRADING PARTNERS TRANSACTION COSTS TRANSACTIONS COSTS TRANSIT TRANSPORT TRANSPORT COSTS TRANSPORTATION TRANSPORTATION COST TRANSPORTATION COSTS UTILITY FUNCTION UTILITY MAXIMIZATION VOLUME OF TRADE WORLD DEVELOPMENT INDICATORS WORLD ECONOMY WORLD TRADE WORLD TRADE ORGANIZATION
Online Access:	http://documents.worldbank.org/curated/en/2005/01/17747607/distance-died-evidence-panel-gravity-model http://hdl.handle.net/10986/16487

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Summary:	The estimated coefficient of distance on the volume of trade is generally found to increase rather than decrease through time using the traditional gravity model of trade. This distance puzzle proved robust to several ad hoc versions of the model using data for 1962-96 for a large sample of 130 countries. The introduction of an augmented barrier to trade function removes the paradox, yielding a decline in the estimate of the elasticity of trade to distance of about 11 percent over the 35-year period for the whole sample. However, the death of distance is shown to be largely confined to bilateral trade between rich countries, with poor countries becoming marginalized.

Has Distance Died? : Evidence from a Panel Gravity Model

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