IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v31y2013icp684-689.html
   My bibliography  Save this article

Are distance effects really a puzzle?

Author

Listed:
  • Lin, Faqin

Abstract

Given the distance proxies for trade costs, the onset of globalization implies that geographical distance would matter less for trade. However, year-on-year regressions of a log-linearized gravity model estimated by the ordinary least squares (OLS) method usually suggest that the negative impact of distance on trade is rising since the 1950s during the late 20th century. These seemingly counter-intuitive results may occur due to the omission of the extensive margin as well as the neglect of the Jensen's inequality. This paper investigates these two potential solutions but that only the second seems to work. After considering Jensen's inequality, the distance effects declined over the period 1950–1999. In addition, this paper proposes a simple theoretical model to identify trade costs. The empirical results also show a declining trend of trade costs over the same time period.

Suggested Citation

  • Lin, Faqin, 2013. "Are distance effects really a puzzle?," Economic Modelling, Elsevier, vol. 31(C), pages 684-689.
    • Handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:684-689
    DOI: 10.1016/j.econmod.2013.01.011
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S026499931300014X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2013.01.011?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrew K. Rose & Mark M. Spiegel, 2011. "The Olympic Effect," Economic Journal, Royal Economic Society, vol. 121(553), pages 652-677, June.
    2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    3. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2004. "The distance puzzle: on the interpretation of the distance coefficient in gravity equations," Economics Letters, Elsevier, vol. 83(3), pages 293-298, June.
    4. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394, Elsevier.
    5. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    6. Clément Bosquet & Hervé Boulhol, 2009. "Gravity, log of gravity and the "distance puzzle"," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00401386, HAL.
    7. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
    8. Berthelon, Matias & Freund, Caroline, 2008. "On the conservation of distance in international trade," Journal of International Economics, Elsevier, vol. 75(2), pages 310-320, July.
    9. Jean-François Brun & Céline Carrère & Patrick Guillaumont & Jaime de Melo, 2015. "Has Distance Died? Evidence from a Panel Gravity Model," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 13, pages 299-320, World Scientific Publishing Co. Pte. Ltd..
    10. Blum, Bernardo S. & Goldfarb, Avi, 2006. "Does the internet defy the law of gravity?," Journal of International Economics, Elsevier, vol. 70(2), pages 384-405, December.
    11. Boriss Siliverstovs & Dieter Schumacher, 2008. "Disaggregated Trade Flows and the "Missing Globalization Puzzle"," Economie Internationale, CEPII research center, issue 115, pages 141-164.
    12. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
    13. Jacks, David S., 2009. "On the death of distance and borders: Evidence from the nineteenth century," Economics Letters, Elsevier, vol. 105(3), pages 230-233, December.
    14. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    15. Thierry Mayer, 2008. "Market Potential and Development," SciencePo Working papers Main hal-01066164, HAL.
    16. Iván Arribas & Francisco Pérez & Emili Tortosa-Ausina, 2011. "A New Interpretation of the Distance Puzzle Based on Geographic Neutrality," Economic Geography, Taylor & Francis Journals, vol. 87(3), pages 335-362, July.
    17. Santos Silva, J.M.C. & Tenreyro, Silvana, 2010. "On the existence of the maximum likelihood estimates in Poisson regression," Economics Letters, Elsevier, vol. 107(2), pages 310-312, May.
    18. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
    19. Mr. Rikhil Bhavnani & Ms. Natalia T. Tamirisa & Mr. Arvind Subramanian & Mr. David T. Coe, 2002. "The Missing Globalization Puzzle," IMF Working Papers 2002/171, International Monetary Fund.
    20. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    21. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    22. Clément Bosquet & Hervé Boulhol, 2015. "What is really puzzling about the “distance puzzle”," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 1-21, February.
    23. Petr Mariel & Susan Orbe & Carlos Rodríguez, 2009. "The Knowledge‐Capital Model Of Fdi: A Time Varying Coefficients Approach," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 196-212, May.
    24. David T Coe & Arvind Subramanian & Natalia T Tamirisa, 2007. "The Missing Globalization Puzzle: Evidence of the Declining Importance of Distance," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 34-58, May.
    25. J. M. C. Santos Silva & Silvana Tenreyro, 2011. "poisson: Some convergence issues," Stata Journal, StataCorp LP, vol. 11(2), pages 215-225, June.
    26. Lin, Faqin & Sim, Nicholas C.S., 2012. "Death of distance and the distance puzzle," Economics Letters, Elsevier, vol. 116(2), pages 225-228.
    27. Céline Carrère & Maurice Schiff, 2005. "On the Geography of Trade. Distance is Alive and Well," Revue économique, Presses de Sciences-Po, vol. 56(6), pages 1249-1274.
    28. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chiarucci, Riccardo & Ruzzenenti, Franco & Loffredo, Maria I., 2014. "Detecting spatial homogeneity in the World Trade Web with Detrended Fluctuation Analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 401(C), pages 1-7.
    2. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2016. "The distance effects on the intensive and extensive margins of trade over time," Empirical Economics, Springer, vol. 50(2), pages 253-278, March.
    3. Franco Ruzzenenti, 2018. "The Prism of Elasticity in Rebound Effect Modelling: An Insight from the Freight Transport Sector," Sustainability, MDPI, vol. 10(8), pages 1-13, August.
    4. Faqin Lin, 2015. "Estimating the effect of the Internet on international trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(3), pages 409-428, April.
    5. Mnasri, Ayman & Nechi, Salem, 2021. "New nonlinear estimators of the gravity equation," Economic Modelling, Elsevier, vol. 95(C), pages 192-202.
    6. Chakrabarti, Anindya S. & Sengupta, Aparna, 2017. "Productivity differences and inter-state migration in the U.S.: A multilateral gravity approach," Economic Modelling, Elsevier, vol. 61(C), pages 156-168.
    7. Mnasri, Ayman & Nechi, Salem, 2019. "New Approach to Estimating Gravity Models with Heteroscedasticity and Zero Trade Values," MPRA Paper 93426, University Library of Munich, Germany.
    8. Yang, Yu & Poon, Jessie P.H. & Liu, Yi & Bagchi-Sen, Sharmistha, 2015. "Small and flat worlds: A complex network analysis of international trade in crude oil," Energy, Elsevier, vol. 93(P1), pages 534-543.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Juyoung Cheong & Do Won Kwak & Kam Ki Tang, 2016. "The distance effects on the intensive and extensive margins of trade over time," Empirical Economics, Springer, vol. 50(2), pages 253-278, March.
    2. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    3. Elisaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Documents de Travail de l'OFCE 2012-17, Observatoire Francais des Conjonctures Economiques (OFCE).
    4. Yotov, Yoto V., 2012. "A simple solution to the distance puzzle in international trade," Economics Letters, Elsevier, vol. 117(3), pages 794-798.
    5. Anderson, James E. & Yotov, Yoto V., 2020. "Short run gravity," Journal of International Economics, Elsevier, vol. 126(C).
    6. repec:spo:wpmain:info:hdl:2441/53r60a8s3kup1vc9ji21mi9p3 is not listed on IDEAS
    7. Piermartini, Roberta & Yotov, Yoto V., 2016. "Estimating trade policy effects with structural gravity," WTO Staff Working Papers ERSD-2016-10, World Trade Organization (WTO), Economic Research and Statistics Division.
    8. Rosselló-Nadal, Jaume & Santana-Gallego, María, 2024. "Toward a smaller world. The distance puzzle and international border for tourism," Journal of Transport Geography, Elsevier, vol. 115(C).
    9. repec:hal:spmain:info:hdl:2441/53r60a8s3kup1vc9ji21mi9p3 is not listed on IDEAS
    10. Lin, Faqin & Sim, Nicholas C.S., 2012. "Death of distance and the distance puzzle," Economics Letters, Elsevier, vol. 116(2), pages 225-228.
    11. Bergstrand, Jeffrey H. & Larch, Mario & Yotov, Yoto V., 2015. "Economic integration agreements, border effects, and distance elasticities in the gravity equation," European Economic Review, Elsevier, vol. 78(C), pages 307-327.
    12. Clément Bosquet & Hervé Boulhol, 2015. "What is really puzzling about the “distance puzzle”," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 1-21, February.
    13. Samuel Standaert & Stijn Ronsse & Benjamin Vandermarliere, 2014. "Historical trade integration: Globalization and the distance puzzle in the long 20th century," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 14/897, Ghent University, Faculty of Economics and Business Administration.
    14. repec:wsr:wpaper:y:2012:i:095 is not listed on IDEAS
    15. Magerman, Glenn & Studnicka, Zuzanna & Van Hove, Jan, 2016. "Distance and border effects in international trade: A comparison of estimation methods," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-31.
    16. Orestis VRAVOSINOS, 2017. "On the life and death of distance," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 207-214, Spring.
    17. Orestis VRAVOSINOS, 2017. "On the life and death of distance," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(610), S), pages 207-214, Spring.
    18. Borchert, Ingo & Yotov, Yoto V., 2017. "Distance, globalization, and international trade," Economics Letters, Elsevier, vol. 153(C), pages 32-38.
    19. Clément Bosquet & Hervé Boulhol, 2015. "What is really puzzling about the “distance puzzle”," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 1-21, February.
    20. Yoto V. Yotov, 2022. "On the role of domestic trade flows for estimating the gravity model of trade," Contemporary Economic Policy, Western Economic Association International, vol. 40(3), pages 526-540, July.
    21. Keith Head & Thierry Mayer, 2013. "What separates us? Sources of resistance to globalization," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1196-1231, November.
    22. Boriss Siliverstovs & Dieter Schumacher, 2008. "Disaggregated Trade Flows and the "Missing Globalization Puzzle"," Economie Internationale, CEPII research center, issue 115, pages 141-164.
    23. Jacks, David S. & Meissner, Christopher M. & Novy, Dennis, 2011. "Trade booms, trade busts, and trade costs," Journal of International Economics, Elsevier, vol. 83(2), pages 185-201, March.

    More about this item

    Keywords

    Distance effect; Year-on-year regression; Trade costs;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:684-689. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.