Distance, Trade, and Income - The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment
No 15557, NBER Working Papers from National Bureau of Economic Research, Inc
The negative effect of distance on bilateral trade is one of the most robust findings in international trade. However, the underlying causes of this negative relationship are less well understood. This paper exploits a temporary shock to distance, the closing of the Suez canal in 1967 and its reopening in 1975, to examine the effect of distance on trade and the effect of trade on income. Time series variation in sea distance allows for the inclusion of pair effects which account for static differences in tastes and culture between countries. The distance effects estimated in this paper are therefore more clearly about transportation costs in the trade of goods than typical gravity model estimates. Distance is found to have a significant impact on trade with an elasticity that is about half as large as estimates from typical cross sectional estimates. Since the shock to trade is exogenous for most countries, predicted trade volume from the shock can be used to identify the effect of trade on income. Trade is found to have a significant impact on income. The time series dimension allows for country fixed effects which control for all long run income differences. Because identification is through changes in sea distance, the effect is coming entirely through trade in goods and not through alternative channels such as technology transfer, tourism, or foreign direct investment.
JEL-codes: F1 F15 F43 O4 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-int
Note: EFG ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48) Track citations by RSS feed
Downloads: (external link)
Working Paper: Distance, Trade, and Income -- The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:15557
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().