Distance and Trade: Disentangling unfamiliarity effects and transport cost effects
International Trade from EconWPA
This paper provides evidence supporting Grossman’s (1996) claim that not only transport costs but also unfamiliarity can explain the negative correlation between geographic distances and bilateral trade volumes. A gravity model that controls for as many natural causes of trade as possible reveals that countries high in uncertainty-aversion (based on Hofstede’s survey) export disproportionately less to distant countries (with which they are presumably less familiar). More important, this result is mainly driven by differentiated products, not by products with international organized exchanges or with reference prices. For transport costs alone to explain such a trade pattern, one would have to assume that distance-related ad valorem transport costs are higher when a trade route originates from a high uncertainty-aversion country, which is unlikely. This trade pattern is easy to explain, however, if one accepts that geographic distance is a proxy for unfamiliarity and that exporters in high uncertainty-aversion countries are more sensitive to informational ambiguity. A further result is that high uncertainty- aversion countries trade less and thus grow more slowly in the long run, which suggests that cultural factors are as important as geographic ones in determining trade openness.
JEL-codes: F1 F2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Note: Type of Document - pdf; pages: 34
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Journal Article: Distance and trade: Disentangling unfamiliarity effects and transport cost effects (2007)
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:wpa:wuwpit:0511010
Access Statistics for this paper
More papers in International Trade from EconWPA
Series data maintained by EconWPA ().