Have developed countries escaped the curse of distance?

Abstract

There is widespread evidence that a better access to markets contributes to raising income levels. However, no quantification of the impact of distance to markets has been made on the basis of a sample restricted to advancedand therefore more homogeneouscountries. This paper applies the framework developed by Redding and Venables ( 2004) on a panel data covering 21 OECD countries over 1970-2004, and shows that, relative to the average OECD country, the cost of remoteness for countries such as Australia and New Zealand could be as high as 10% of GDP. Conversely, the benefit for centrally-located countries like Belgium and the Netherlands could be around 6-7%. Second, the paper explains why the key estimated parameter in the Redding-Venables model is biased upwards in cross-section samples that mix both developing and developed countries, because of the inability to adequately control for heterogeneity in technology levels across countries. The paper also provides a detailed discussion of the links between the -death-of-distance‖ hypothesis, the evolution of transport costs and that of the elasticity of trade to distance.

Distance, globalization, and international trade

“…See Buch et al (2004), Carrère and Schiff (2005), Brun et al (2005), Boulhol and de Serres (2010), Lin and Sim (2012), Yotov (2012) Carrère et al (2013) and .…”

Policies to support sustainable long-term growth in New Zealand

“…It is widely recognised that New Zealand's size and geographic isolation have constrained its economic performance, perhaps reducing per capita GDP by up to 10% (Boulhol and de Serres, 2008). Good policies can nonetheless help counter New Zealand's geographic obstacles, and indeed the long-run deterioration in relative per capita incomes came to an end following the significant structural reforms of the 1980s and early 1990s (McCann, 2009).…”

“…On the one hand, studies suggest more generally that the importance of physical distance for trade has not diminished (Boulhol and de Serres, 2008) and may have even increased over time for both goods and services (Nordäs, 2008a), despite declining costs of transportation and communication. Globally, the average distance of trade has actually shortened over the past few decades, with more trade occurring between neighbours rather than with distant countries (Skilling and Boven, 2007).…”

“…This implies that proximity to markets and co-location with other suppliers may heavily influence firms' location choices. Global competition has reduced mark-ups and increased the substitutability of goods, which may make trade even more cost sensitive (Boulhol and de Serres, 2008). Such factors place firms operating in distant markets such as New Zealand at a competitive disadvantage in selling certain products.…”

Taking Stock of Existing Structural Policy and Outcome Indicators

“…However, the direction of causality is not always clear: 'deep' institutions are also highly endogenous, and it is not at all easy to identify their causal role with respect to income levels or economic growth (Glaeser et al, 2004;Acemoglu et al, 2005). Moreover, the role of geographic factors and trade openness appears to be closely inter-related with institutions, making their identification difficult (Rodrick et al, 2004;Boulhol and de Serres., 2008). In addition, there appear to be important threshold effects, with good institutions (e.g.…”