Product Heterogeneity, Intangible Barriers and Distance Decay: The Effect of Multiple Dimensions of Distance on Trade Across Different Product Categories
VU University Amsterdam
Thomas De Graaff
VU University Amsterdam - Faculty of Economics and Business Administration
Henri L. F. De Groot
VU University Amsterdam - Department of Spatial Economics; Tinbergen Institute
July 9, 2012
Tinbergen Institute Discussion Paper 12-065/3
We empirically examine the heterogeneity in the effects of multiple dimensions of distance on trade across detailed product groups. Using finite mixture modeling on bilateral trade data at the 3-digit SITC level, we endogenously group product categories into an, a priori unknown, number of segments based on estimated coefficients of multiple dimensions of distance in the gravity equation. We find that institutional distance, whether countries belong to the same trade block and especially geographical distance are crucial and distinct factors to classify commodities in homogeneous groups.
Number of Pages in PDF File: 26
Keywords: bilateral trade, gravity models, distance, institutions, product heterogeneity, finite mixture modeling
JEL Classification: F14, F21, F23working papers series
Date posted: July 11, 2012
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