On the conservation of distance in international trade

Abstract

Using disaggregated bilateral trade data, we find that the elasticity of trade to distance increased (in absolute value) by about 10% since 1985. To explore the reasons for this shift, we decompose the change in the distance elasticity of trade into the part due to a shift in the composition of trade among industries and the part due to a change in the distance sensitivity within industries. We find that adjustment in the composition of trade had little effect, but for 40% of industries distance became more important, with nearly all of the remaining industries showing no significant change. We explore alternative hypotheses as to why the elasticity of trade to distance increased in some industries. We find that homogeneous goods, bulky goods, and high tariff goods became significantly more distance sensitive. In contrast, the evidence implies that changes in tariffs and freight costs have reduced the importance of distance on trade. We conclude that the increase in the importance of distance over time is related to the substitutability of goods and the level of trade costs, but not to changes in tariffs or freight costs.

Distance and Border Effects in International Trade: A Comparison of Estimation Methods

“…According to Felbermayr and Kohler (2006), the non-decreasing distance effect can be explained when failing to take into account the extensive margin of trade. Conversely, Berthelon and Freund (2008) show that the increase of the overall distance coefficient is due to changes of distance coefficients across industries. They explore two possible reasons for these changes.…”

“…Also Disdier and Head (2008) argue that the distance effect is rather constant after a rise around mid twentieth century. Conversely, Frankel (1997a), Soloaga and Winters (2001), Berthelon and Freund (2008) obtain evidence for an increasing distance effect, whereas e.g. Boisso and Ferrantino (1993), Eichengreen and Irwin (1998), Brun et al (2005), Felbermayr and Kohler (2006), Coe et al (2007) observe a negative evolution in the distance effect over time.…”

The Global Labor Market Impact of Emerging Giants: A Quantitative Assessment

“…Note that all the variables have a sector superscript j: we allow all the trade cost proxy variables to affect true iceberg trade costs d j ni differentially across sectors. There is a range of evidence that trade volumes at sector level vary in their sensitivity to distance or common border (see, among many others, Do andLevchenko 2007, Berthelon andFreund 2008). This leads to the following final estimating equation:…”

Disaggregated Trade Flows and the 'Missing Globalization Puzzle'

“…To the best of our knowledge, there is at least one paper (Berthelon and Freund, 2004) that specifically investigates changes in distance effects using disaggregated trade flows at the industry level. Using a sample of 73 countries, Berthelon and Freund (2004) report an estimated change in distance effects for each of 768 industries disaggregated at the four-digit SITC Revision 2 level.…”

“…Using a sample of 73 countries, Berthelon and Freund (2004) report an estimated change in distance effects for each of 768 industries disaggregated at the four-digit SITC Revision 2 level. Specifically, their results suggest that for most industries the effects of distance stayed constant over the period 1985 to 2000, and for about 25% of industries the role of distance somewhat increased.…”