Mismeasurement of Distance Effects: The Role of Internal Location of Production

35 Pages Posted: 9 Jul 2008 Last revised: 15 Apr 2014

Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 14, 2014

Abstract

The estimated effects of distance in empirical international trade regressions are unrealistically high. Using state-and-sector level U.S. exports data, this paper shows analytically and proves empirically that ignoring the internal location of production (of international exports), which leads to the overestimation of distance effects by about twofold, is a possible explanation. This overestimation is mostly attributed to the mismeasurement of the distance elasticity of trade costs when internal locations of production are ignored. A corrective distance index is proposed to avoid such mismeasurements and is shown to work well for the median sector. The results are robust to the consideration of alternative estimation methodologies and data sets.

Keywords: Elasticity of Substitution, Distance Elasticity of Trade, State Exports, the United States

JEL Classification: F12, F13, F14

Suggested Citation

Yilmazkuday, Hakan, Mismeasurement of Distance Effects: The Role of Internal Location of Production (April 14, 2014). Available at SSRN: https://ssrn.com/abstract=1157106 or http://dx.doi.org/10.2139/ssrn.1157106

Hakan Yilmazkuday (Contact Author)

Florida International University (FIU) - Department of Economics ( email )

11200 SW 8th Street
Miami, FL 33199
United States

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