The Gravity of Intermediate Goods

30 Pages Posted: 19 Nov 2019

See all articles by Paola Conconi

Paola Conconi

Centre for Economic Policy Research (CEPR); Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Glenn Magerman

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Université Libre de Bruxelles (ULB)

Afrola Plaku

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Date Written: October 1, 2019

Abstract

One of the puzzles of the gravity literature is the persistent effect of distance on trade flows, despite the dramatic fall in trade costs during the last few decades (Disdier and Head, 2008). A possible reason for the "distance puzzle" is that trade in intermediate goods, which has risen dramatically during this period due to the emergence of global value chains, may be more sensitive to distance than trade in final goods. Using a dataset of bilateral import flows covering 5000 products and more than 200 countries over the 1998-2011 period, we show that intermediate goods are indeed more sensitive to distance than final goods, with differentiated inputs exhibiting the highest distance elasticity. The results are robust to including different sets of controls, and using different samples and econometric methodologies. They suggest that sourcing inputs from nearby countries helps final good producers to better coordinate with their suppliers, monitor their production, and insure the timely delivery of inputs that need to be tailored to their needs.

Keywords: gravity, distance, intermediate goods, final goods, product differentiation

JEL Classification: F14, F23

Suggested Citation

Conconi, Paola and Magerman, Glenn and Plaku, Afrola, The Gravity of Intermediate Goods (October 1, 2019). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2019/87, Available at SSRN: https://ssrn.com/abstract=3489061 or http://dx.doi.org/10.2139/ssrn.3489061

Paola Conconi (Contact Author)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 2 650 2345 (Phone)
32 2 650 4475 (Fax)

Glenn Magerman

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

Université Libre de Bruxelles (ULB)

CP 132 Av FD Roosevelt 50
Brussels, Brussels 1050
Belgium

Afrola Plaku

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

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