A New Measure of Economic Distance

38 Pages Posted: 4 Jun 2015

See all articles by Eric O'Neill Fisher

Eric O'Neill Fisher

California State Polytechnic University, San Luis Obispo - Orfalea College of Business

John Gilbert

Utah State University - College of Business - Department of Economics

Kathryn Marshall

UCR

Reza Oladi

Utah State University - College of Business - Department of Economics

Date Written: May 30, 2015

Abstract

This paper defines a new measure of economic distance. Using consistent cross-country data, we estimate local unit costs for 35 sectors in 40 countries. The distance between two countries is the largest percentage difference in unit costs among all sectors. If all goods are traded, this distance is the smallest uniform ad valorem tariff that shuts down bilateral trade. The network induced by the closest 10% of these distances has one large component, consisting primarily of the advanced industrial economies. China, India, and several other countries are isolated components, indicating that their unit costs are idiosyncratic. We also introduce a new measure of revealed comparative advantage.

Keywords: economic distance, international trade

JEL Classification: F100

Suggested Citation

Fisher, Eric O'Neill and Gilbert, John and Marshall, Kathryn and Oladi, Reza, A New Measure of Economic Distance (May 30, 2015). CESifo Working Paper Series No. 5362. Available at SSRN: https://ssrn.com/abstract=2613881

Eric O'Neill Fisher (Contact Author)

California State Polytechnic University, San Luis Obispo - Orfalea College of Business ( email )

San Luis Obispo, CA 93407
United States

John Gilbert

Utah State University - College of Business - Department of Economics ( email )

3530 Old Main Hill
Logan, UT 84322-3530
United States
435-797-2314 (Phone)
435-797-2701 (Fax)

Kathryn Marshall

UCR ( email )

900 University Avenue
Riverside, CA 92521
United States

Reza Oladi

Utah State University - College of Business - Department of Economics ( email )

3530 Old Main Hill
Logan, UT 84322-3530
United States

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