Time-varying trade cost (terms) and the distance puzzle

Arbeitspapier

We present a novel two-stage gravity specification with period-varying bilateral trade cost terms. We test our specification to confirm the benchmark result on declining international distance elasticities over time, using two new data sets. Analyzing period-varying bilateral trade cost derived from our specification offers additional insights: first, globalization has erased more than a third of the effect of distance on trade cost, mostly until the mid-nineties. Second, identifying period-varying bilateral trade cost separately for domestic vs. international trade offers a natural illustration to globalization - international trade cost are less persistent than domestic trade cost. Finally, reflecting the importance of general equilibrium adjustment, total bilateral trade cost - relating partial bilateral trade cost to multilateral resistances - are more appropriate to reflect globalization than partial bilateral trade cost.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IOS Working Papers ; No. 399

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Economic Integration ; Macroeconomic Aspects of International Trade and Finance: General ; Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
• Subject: Gravity ; geography ; panel models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Frensch, Richard ; Rindler, Michael
• Event: Veröffentlichung
• (who): Leibniz-Institut für Ost- und Südosteuropaforschung (IOS)
• (where): Regensburg
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/272225
• Last update: 10.03.2025, 11:43 AM CET