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

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Abstract

We show that distance matters for the volatility of international trade and finance beyond its well-known relevance for their level. A model of trade with endogenous markups shows that the effect of distance on the sensitivity of trade to demand shocks depends on the specific nature of entry and production costs. An empirical assessment using several measures of trade and financial transactions shows that they are more volatile for more distant country pairs. This pattern is observed for several forms of distance.

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  • Arnaud Mehl & Martin Schmitz & Cédric Tille, 2019. "Distance(s) and the Volatility of International Trade(s)," IHEID Working Papers 05-2019, Economics Section, The Graduate Institute of International Studies, revised 07 Sep 2020.
    • Handle: RePEc:gii:giihei:heidwp05-2019
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    Cited by:

    1. Mehl, Arnaud & Sabbadini, Giulia & Schmitz, Martin & Tille, Cédric, 2024. "Distance(s) and the volatility of international trade(s)," European Economic Review, Elsevier, vol. 167(C).
    2. Li, Wei & Wang, Xin & Zhang, Haofei, 2024. "The role of distance and financial development: Evidence from international financial markets," International Review of Financial Analysis, Elsevier, vol. 92(C).

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    More about this item

    Keywords

    distance; gravity; volatility; international trade; international finance; Great Trade Collapse; Covid-19 pandemic;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F30 - International Economics - - International Finance - - - General

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