Asymmetric distance and business cycles (ΑDBC): A new understanding of distance in international trade models through the example of Iran's trade corridors

Hercules Haralambides, Iman Bastanifar, Kashif Hasan Khan and Zahra Shahryari

The Journal of Economic Asymmetries, 2024, vol. 30, issue C

Abstract: We introduce a new concept of distance, and the way this could affect gravity-based trade modeling. Our motivation is twofold: a) global uncertainty in trade relations allows us to treat distance as an asymmetric shock in economic modeling; b) economies of scale in seaborne trade make geographical distance less relevant in trade models, substituted by economic distance, as this can be proxied by ocean freight rates. This, for instance, allows China to import iron ore from Brazil, at three times the distance compared to Australia. We enhance the New Keynesian Dynamic Stochastic General Equilibrium Model (DSGE) by incorporating a distance shock parameter into the transaction costs function. We test this on Iran's participation in the Shanghai Cooperation Organization as well as in the International North-South Transport Corridor. We conclude that longer physical distances do not necessarily have a negative impact on trade.

Keywords: Economic distance; Business cycles; Trade models; DSGE; Transport; INSTC; SCO (search for similar items in EconPapers)
JEL-codes: C01 C51 E12 F1 F5 F62 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:30:y:2024:i:c:s1703494924000380

DOI: 10.1016/j.jeca.2024.e00389

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