Distance, Globalization, and International Trade

17 Pages Posted: 6 Feb 2017  

Ingo Borchert

World Bank - Development Research Group (DECRG)

Yoto Yotov

Drexel University - Department of Economics & International Business

Date Written: December 2016

Abstract

For a long time globalization could be seen everywhere but in gravity estimates. We offer evidence how globalization affects manufacturing trade over the period 1986-2006 and show that, on average, the effect of distance has fallen whereas the effects of proximity and regional trade agreements have increased over time. We also document substantial cross-country heterogeneity in the extent to which distance elasticities have changed. Countries in the middle of the per-capita income distribution have seen the steepest fall in distance coefficients. At the same time, distance as a trade friction has not lost its bite for a number of low income countries, which may jeopardize their integration into global markets. We present suggestive evidence that the heterogeneous change in distance elasticities is related to secular shifts in the composition of exports.

Keywords: distance puzzle, missing globalization, structural gravity, poor countries

JEL Classification: F130, F140, F160

Suggested Citation

Borchert, Ingo and Yotov, Yoto, Distance, Globalization, and International Trade (December 2016). CESifo Working Paper Series No. 6275. Available at SSRN: https://ssrn.com/abstract=2912083

Ingo Borchert

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

Yoto Yotov (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

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