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Coordination cost and the distance puzzle

Author

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  • Noblet, Sandrine
  • Belgodere, Antoine

Abstract

Since 1960, transport costs have been falling, but international exchange did not become less sensitive to distance. We propose the following explanation for this puzzle: in a Dixit-Stiglitz framework, a decrease in transport cost favors trade, which may increase the international specialization (i.e. the number of varieties of intermediate goods used in production). An increased international specialization increases the need for coordination, and makes relatively more important for downstream firms to be close to their suppliers. As a result, trade increases with all partners, but more quickly for neighbors than for distant countries.

Suggested Citation

  • Noblet, Sandrine & Belgodere, Antoine, 2010. "Coordination cost and the distance puzzle," MPRA Paper 27502, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:27502
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    References listed on IDEAS

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    More about this item

    Keywords

    Transport cost ; coordination cost ; international trade ; distance puzzle;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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