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On the conservation of distance in international trade

Matias Berthelon and Caroline Freund ()

No 3293, Policy Research Working Paper Series from The World Bank

Abstract: The volume of world trade has grown more than twice as fast as real world income since 1980. Surprisingly, the effect of distance on trade has increased during this period. It could be that countries are trading greater volumes of goods that are highly sensitive to distance. An alternative explanation is that distance has become more import for a significant share of goods. Using highly disaggregated bilateral trade data, the authors find that adjustment in the composition of trade has not influenced the way in which distance affects trade. In contrast, for about 25 percent of industries, distance has become more important. This implies that the increased distance sensitivity of trade is a result of a change in relative trade costs that affects many industries, as opposed to a shift to more distance-sensitive products. The authors also find that homogeneous products are twice as likely to have become more distance sensitive as compared with differentiated goods. This is consistent with the hypothesis that falling search costs, resulting from improvements in transport and communications, are relatively more important for differentiated goods. The results offer no evidence of the"death of distance."Rather, they suggest that distance-related relative trade costs have remained unchanged or shifted in favor of proximate markets.

Keywords: Economic Theory&Research; Environmental Economics&Policies; Standards and Technical Regulations; Common Carriers Industry; Trade Policy; Common Carriers Industry; Economic Theory&Research; TF054105-DONOR FUNDED OPERATIONADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Environmental Economics&Policies; Trade Policy (search for similar items in EconPapers)
Date: 2004-05-01
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Journal Article: On the conservation of distance in international trade (2008) Downloads
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