The Gravity of Resources and the Tyranny of Distance

Peter Robertson and Marie-Claire Robitaille
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Marie-Claire Robitaille: The University of Nottingham, Ningbo China

No 15-01, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: Falling transport costs and the rise of global production networks have reshaped world trade. But endowments still determine production locations for fuels and minerals. Moreover, because they are often bulky or dicult to store, unit transport costs for natural resources may still be very large. To what extent, therefore, does geography remain an important determinant of comparative and absolute advantage in these markets? We estimate gravity models and show that some minerals and fuels, particularly Iron Ore and Gas, have very high elasticities of trade with respect to distance. We then consider counterfactuals, how trade would di er if location advantages were eliminated. We nd that for a few resource intensive countries, distance barriers have a large impact of their market share and are equivalent to a 70-100% ad valorem export tax relative to an average country. Similar implicit subsidies apply for a large number of well located countries.

Pages: 43 pages
Date: 2015
New Economics Papers: this item is included in nep-int and nep-tre
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