Differing trade elasticities for intra‐ and international distances: A gravity approach

Using the gravity model of trade, I estimate the impact that within‐country transportation distance has on international trade levels. Combining multiple data sets, I create a measure for the distance U.S. agricultural goods travel before leaving the country. In order to account for endogeneity in production location choice, I use potential agricultural production as an instrument for actual agricultural production. I find that internal distance is statistically significant and large in magnitude. A 10% reduction in the distance a good travels within the exporting country increases trade by roughly 3%.