Disaggregated Trade Flows and the 'Missing Globalization Puzzle'

KOF Working Paper No. 209

23 Pages Posted: 23 Oct 2008

See all articles by Boriss Siliverstovs

Boriss Siliverstovs

German Institute for Economic Research (DIW Berlin) - Department of International Economics

Dieter Schumacher

German Institute for Economic Research (DIW Berlin) - Department of International Economics

Date Written: October 1, 2008

Abstract

This study analyzes the stability of the distance coefficient values over time in the generalized gravity equation of Bergstrand (1989) using both aggregate and disaggregated trade flows among 22 OECD countries recorded for the sample period covering 1970 until 2000. We estimate the gravity equation both in its traditional form as well as by taking into account multilateral resistance as suggested in Baier and Bergstrand (2007). First of all, we find that the missing globalization puzzle, typically observed in empirical gravity models for aggregate trade flows, largely disappears when one estimates a gravity model using disaggregated trade data at the level of individual industries. Secondly, we document that accounting for multilateral price resistance alone can provide some evidence against the missing globalization puzzle. At the same time, the results obtained for a traditional specification of the gravity equation emphasizing the importance of disaggregated trade flows in explaining the distance puzzle remain largely intact. We also illustrate how the aggregation bias could have contributed to a typical finding of a non-declining trade-deterring role of distance in the existing literature.

Keywords: Gravity model, missing globalization puzzle, distance coefficient, multilateral resistance

JEL Classification: F12

Suggested Citation

Siliverstovs, Boriss and Schumacher, Dieter, Disaggregated Trade Flows and the 'Missing Globalization Puzzle' (October 1, 2008). KOF Working Paper No. 209, Available at SSRN: https://ssrn.com/abstract=1288102 or http://dx.doi.org/10.2139/ssrn.1288102

Boriss Siliverstovs (Contact Author)

German Institute for Economic Research (DIW Berlin) - Department of International Economics ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

HOME PAGE: http://www.diw.de/programme/jsp/MA.jsp?language=en&uid=bsiliverstovs

Dieter Schumacher

German Institute for Economic Research (DIW Berlin) - Department of International Economics ( email )

Mohrenstra├če 58
Berlin, 10117
Germany
+49-30-89789-670 (Phone)
+49-30-89789-305 (Fax)

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