Have Developed Countries Escaped the Curse of Distance?

Abstract

This article applies for the first time the framework developed by Redding and Venables (Journal of International Economics, 62: 53-82) on a panel dataset restricted to advanced countries over 1970-2004, and shows that the cost of remoteness remains significant. Second, the article highlights that the elasticity of aggregate income to distance to markets in the Redding-Venables model is severely biased upwards in cross-section samples that mix both developing and developed countries, most likely due to the inability to adequately control for heterogeneity in technology levels across countries. Also, the effect of distance is robust to whether the trade equation is specified as linear in logarithm or nonlinear in level.

Keywords: economic geography, market access, distance

JEL Classification: F12, F15, R11, R12