Distance(s) and the Volatility of International Trade(s)

44 Pages Posted: 26 Mar 2019

See all articles by Arnaud Mehl

Arnaud Mehl

European Central Bank (ECB)

Martin Schmitz

European Central Bank (ECB)

Cédric Tille

Graduate Institute of International and Development Studies (HEI)

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2019

Abstract

Does distance matter for the volatility of international real and financial transactions? We show that it does, in addition to its well-established relevance for the level of trade. A simple model of trade with endogenous markups shows that demand shocks have a larger impact on trade between more distant countries. We test this implication in two steps, relying on a broad range of real and financial transactions measures, as well as several different metrics of distance (physical, linguistic, and internet). We first show that during the Great Trade Collapse of 2007-09 international transactions fell more between countries that are more distant along the various metrics, and find that the different distance measures magnify each other’s respective impacts. We then focus on a longer panel analysis of trade in goods and show that trade is more volatile between more distant countries, with again a magnification pattern across metrics of distance.

Keywords: distance, gravity, volatility, international trade, international finance, Great Trade Collapse

JEL Classification: F10, F30

Suggested Citation

Mehl, Arnaud and Schmitz, Martin and Tille, Cedric, Distance(s) and the Volatility of International Trade(s) (March 25, 2019). ECB Working Paper No. 2252 (2019); ISBN 978-92-899-3514-2 . Available at SSRN: https://ssrn.com/abstract=3360229

Arnaud Mehl (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Martin Schmitz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Cedric Tille

Graduate Institute of International and Development Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

HOME PAGE: http://sites.google.com/site/cedrictilleheid/home

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