The Distance Effect on Bilateral Trade Revisited

Abstract

We extend Disdier and Head's (The Review of Economics and statistics, 2008, 90 (1), 37-48) analysis of the distance puzzle in international trade using global trade data from the IMF Direction of Trade Statistics (DOTS) database with a larger sample of countries and years than previously used. Our results indicate that the effect of bilateral distance on exports is constant over time and insignificant after simultaneously controlling for (1) heteroskedasticity (via the PPML estimator), (2) the effect of internal distance (through the adjusted international distance effect), (3) yearly differences in export levels (through standardising) and (4) shifts in the share of intra-regional trade or trade integration (using a regional indicator).

Keywords: Distance puzzle, Year-by-year regression, Gravity model, International trade