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Heterogeneity and distance puzzle

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Abstract

This paper shows that reduced heterogeneity of exporter-specific goods can provide a direct explanation of the distance puzzle. Using COMTRADE 4-digit bilateral trade data we find that the elasticity of trade to distance has increased by 8% from 1962 to 2009. Theoretical foundations of the gravity equation indicate that the distance coefficient is the product of the elasticity of trade costs to distance and a measure of heterogeneity, e.g. the substitution elasticity between exporter-specific goods in the Armington framework. This parameter has increased by 13% from 1962 to 2009. The evolution of the distance coefficient is thus compatible with a 4% reduction in the elasticity of trade costs to distance.
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hal-01073683 , version 1 (10-10-2014)

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Guillaume Daudin, Elizaveta Archanskaia. Heterogeneity and distance puzzle. 2012. ⟨hal-01073683⟩
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