The distance effect in banking and trade

Michael Brei and Goetz von Peter (goetz.von.peter@bis.org)

Journal of International Money and Finance, 2018, vol. 81, issue C, 116-137

Abstract: The empirical gravity literature finds geographical distance to be a large and growing obstacle to trade, contradicting the popular notion that globalization heralds “the end of geography”. This distance puzzle disappears, however, when measuring the effect of cross-border distance relative to that of domestic distance (Yotov, 2012). We uncover the same result for banking when comparing cross-border positions with domestic credit, using the most extensive dataset on global bank linkages between countries. The role of distance remains substantial for trade as well as for banking where transport cost is immaterial – pointing to the role of information frictions as a common driver. A second contribution is to show that the forces of globalization are also evident in other, less prominent, parts of the gravity framework.

Keywords: Globalization; Gravity framework; Distance; International trade; International banking (search for similar items in EconPapers)
JEL-codes: F14 F34 F65 G21 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560617302000
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Distance Effect in Banking and Trade (2018)
Working Paper: The Distance Effect in Banking and Trade (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:81:y:2018:i:c:p:116-137

DOI: 10.1016/j.jimonfin.2017.10.002

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).