A simple solution to the distance puzzle: balanced data and Poisson estimation

David Buehler () and Roger White

Applied Economics Letters, 2015, vol. 22, issue 7, 587-592

Abstract: We propose the use of a balanced panel data set and Poisson regression as a solution to the distance puzzle. Employing annual data for the period 1972-2010, we confirm the existence of the puzzle by applying OLS regression to both an unbalanced panel data set and a narrowly defined balanced panel. We find that Poisson regression remedies the distance puzzle, producing a constant trend for the distance coefficient when the unbalanced panel is examined and a positive trend for the balanced data. The findings confirm the common intuition that the influence of transport costs on trade flows has decreased over time.

Date: 2015
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DOI: 10.1080/13504851.2014.959650

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