Download This PaperDistance
40 Pages Posted: 21 May 2020
Date Written: April 25, 2020
Abstract
Geographic distance plays an important role in many disciplines like economic geography, trade or demography. In international economics and finance, it is primarily used as a substitute of transaction costs in gravity equations of bilateral trade in goods and assets. This paper is a synthesis of the work on gravity models and the way distance coefficients are (or should be) interpreted. Specifically, I argue that the persistent and seemingly puzzling influence of geography goes mainly through a familiarity preference due to information asymmetries and suggest a new method to measure the magnitude of the "information exchange" across economic agents.
Keywords: geography, distance, gravity equations, cultural distance, information distance
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