On the Conservation of Distance in International Trade

By Matias Berthelon, Caroline Freund. 2004

294 citations recorded by the source corpus.

The volume of world trade has grown more than twice as fast as real world income since 1980. Surprisingly, the effect of distance on trade has increased during this period. It could be that countries are trading greater volumes of goods that are highly sensitive to distance. An alternative explanation is that distance has become more import for a significant share of goods. Using highly disaggregated bilateral trade data, we find that adjustment in the composition of trade has not influenced the way in which distance affects trade. In contrast, for about 25 percent of industries, distance has become more important. This implies that the increased distance sensitivity of trade is a result of a change in relative trade costs that affects many industries, as opposed to a shift to more distance-sensitive products. We also find that homogeneous products are twice as likely to have become more distance sensitive as compared with differentiated goods. This is consistent with the hypothesis that falling search costs, resulting from improvements in transport and communications, are relatively more important for differentiated goods. The results offer no evidence of the "death of distance," rather they suggest that distance- related relative trade costs have remained unchanged or shifted in favor of proximate markets.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/7f7e852cfeedd1e9ad779c47f71dfe90ccb7c2a0

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In Economics and Econometrics

1. Mario Larch
2. Céline Carrère
3. Yoto V. Yotov
4. J. Bergstrand
5. P. Guillaumont
6. Jaime de Melo
7. Jean-François Brun
8. Sjoerd Beugelsdijk

Citations in the corpus

• Economic Integration Agreements, Border Effects, and Distance Elasticities in the Gravity Equation (2015, background): “Berthelon and Freund (2008) found rising distance elasticities since 1985 using OLS. Larch, Norbäck, Sirries, and Urban (2012) found a declining distance e ect using non-linear estimators, but not using OLS.”
• The Missing Globalization Puzzle: Evidence of the Declining Importance of Distance (2007, unknown): “…varying between 0.5 and 1.0 or higher (Frankel, 1997; Frankel and Wei, 1998; Helliwell, 1998; Soloaga and Winters, 2001; Frankel and Rose, 2002; and Berthelon and Freund, 2004).4 In their survey of the literature, Leamer and Levinsohn (1997) note that this result of a stable distance coefficient…”
• The Puzzling Persistence of the Distance Effect on Bilateral Trade (2008, unknown): “Berthelon and Freund’s (2004) study of industry-level trade finds that 75% of industries do not exhibit significant changes in the distance effect. The significant changes are almost all in the direction of a larger distance effect over the 1985–2000 period. Felbermayr and Kohler (forthcoming) sugge”
• Distance and Perceptions of Risk in Internationalization Decisions (2015, background): “Several empirical studies confirm that geography remains a barrier to trade and foreign direct investment (FDI) (Berthelona & Freund, 2008; Gripsrud & Benito, 2005; van Bergeijk & Brakman, 2010) and that geographic distance increases the perceived risk of a foreign market because of information asym”
• Gravity Chains: Estimating Bilateral Trade Flows When Parts and Components Trade is Important (2011, unknown): “For example, Rauch (1999), Brun et al. (2005), Berthelon and Freund (2008), and Jacks et al. (2008) use GDP as the mass variable when they decompose the change in the trade flow into the effects of income changes and trade cost changes; Anderson and Van Wincoop (2003) also use GDP as the mass variab”
• The Evolution of Comparative Advantage: Measurement and Welfare Implications (2011, unknown): “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 and Levchenko 2007, Berthelon and Freund 2008).”
• How Remote is the Offshoring Threat (2009, unknown): “Berthelon and Freund (2006) examine industry-level trends and find that most are insignificant but about a quarter show significantly stronger distance effects.”
• Has Distance Died? Evidence from a Panel Gravity Model (2002, background): “However, Berthelon and Freund (2004) find no support for this argument.”