Type
Working paper
Title
Heterogeneity and distance puzzle
In
Document de travail
Author(s)
DAUDIN Guillaume - Observatoire français des conjonctures économiques (Author)
ARCHANSKAIA Elizaveta - KU Leuven (Author)
Editor
PARIS : OFCE
Collection
Document de travail : 2012-17
Keywords
gravity equation, distance puzzle, trade elasticity, trade costs
Abstract
EN
This paper shows that reduced heterogeneity of exporter-specific goods can provide a direct explanation of the distance puzzle. Using COMTRADE 4-digit bilateral trade data we find that the elasticity of trade to distance has increased by 8% from 1962 to 2009. Theoretical foundations of the gravity equation indicate that the distance coefficient is the product of the elasticity of trade costs to distance and a measure of heterogeneity, e.g. the substitution elasticity between exporter-specific goods in the Armington framework. This parameter has increased by 13% from 1962 to 2009. The evolution of the distance coefficient is thus compatible with a 4% reduction in the elasticity of trade costs to distance.

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