Heterogeneity and distance puzzle

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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Pré-publication, Document de travail
2012
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Guillaume Daudin, Elizaveta Archanskaia. Heterogeneity and distance puzzle. 2012. 〈hal-01073683〉

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