Mismeasurement of Distance Effects: The Role of Internal Location of Production

Hakan Yilmazkuday

No 1412, Working Papers from Florida International University, Department of Economics

Abstract: The estimated effects of distance in empirical international trade regressions are unrealistically high. Using state-and-sector level U.S. exports data, this paper shows analytically and proves empirically that ignoring the internal location of production (of international exports), which leads to the overestimation of distance e¡èects by about twofold, is a possible explanation. This overestimation is mostly attributed to the mismeasurement of the distance elasticity of trade costs when internal locations of production are ignored. A corrective distance index is proposed to avoid such mismeasurements and is shown to work well for the median sector. The results are robust to the consideration of alternative estimation methodologies and data sets.

Keywords: Corrective Distance Index; Elasticity of Substitution; Distance Elasticity of Trade; State Exports (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2014-12
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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https://economics.fiu.edu/research/pdfs/2014_working_papers/1412.pdf First version, 2014 (application/pdf)

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Journal Article: Mismeasurement of Distance Effects: The Role of Internal Location of Production (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:fiu:wpaper:1412

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