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Heterogeneity and the distance puzzle

Elizaveta Archanskaia and Guillaume Daudin ()
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Elizaveta Archanskaia: OFCE - Observatoire Français des Conjonctures économiques - Institut d'Études Politiques [IEP] - Paris - Fondation Nationale des Sciences Politiques [FNSP]

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Abstract: This paper shows that reduced heterogeneity of exporter-specific goods can provide a direct explanation of the distance puzzle. Using COMTRADE 4-digit bilateral trade data we find that the elasticity of trade to distance has increased by 8% from 1962 to 2009. Theoretical foundations of the gravity equation indicate that the distance coefficient is the product of the elasticity of trade costs to distance and a measure of heterogeneity, e.g. the substitution elasticity between exporter-specific goods in the Armington framework. This parameter has increased by 13% from 1962 to 2009. The evolution of the distance coefficient is thus compatible with a 4% reduction in the elasticity of trade costs to distance.

Keywords: Gravity equation; distance puzzle; trade elasticity; trade costs (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2017-03-27
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01496258
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Related works:
Working Paper: Heterogeneity and the Distance Puzzle (2012) Downloads
Working Paper: Heterogeneity and the Distance Puzzle (2012) Downloads
Working Paper: Heterogeneity and the Distance Puzzle (2012) Downloads
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