The Gravity of Experience

48 Pages Posted: 20 Mar 2014

See all articles by Pushan Dutt

Pushan Dutt

INSEAD - Economics and Political Sciences

Ana Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Daniel A. Traca

Nova School of Business and Economics

Date Written: March 20, 2014

Abstract

In this paper, we establish the importance of experience in international trade for reducing trade costs and facilitating bilateral trade. Within an augmented gravity framework, we find that an additional year of experience at the country-pair level reduces trade costs by 2.0% and increases bilateral exports by 8%. The effect of experience is stronger for country-pairs that are more distant, who do not share a common border, and who lack colonial and legal ties. Further, experience raises both the extensive and the intensive margins of trade. In a dynamic trade model with heterogeneous firms and where export-experience reduces trade costs, our empirical results imply that benefits of experience are shared industry-wide and that experience lowers the variable component of trade costs.

Keywords: Gravity Model, Trade costs, Experience, Extensive and Intensive Margin

JEL Classification: F10, F14

Suggested Citation

Dutt, Pushan and Santacreu, Ana Maria Maria and Traca, Daniel A., The Gravity of Experience (March 20, 2014). INSEAD Working Paper No. 2014/22/EPS. Available at SSRN: https://ssrn.com/abstract=2411949 or http://dx.doi.org/10.2139/ssrn.2411949

Pushan Dutt (Contact Author)

INSEAD - Economics and Political Sciences ( email )

1 Ayer Rajah Avenue
Singapore, 138676
Singapore
65-6799-5498 (Phone)

HOME PAGE: http://faculty.insead.edu/pushan-dutt/

Ana Maria Maria Santacreu

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Daniel A. Traca

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

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