Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/194810
Authors: 
Mehl, Arnaud
Schmitz, Martin
Tille, Cédric
Year of Publication: 
2019
Series/Report no.: 
Kiel Working Paper 2125
Abstract: 
Does distance matter for the volatility of international real and financial transactions? We show that it does, in addition to its well-established relevance for the level of trade. A simple model of trade with endogenous markups shows that demand shocks have a larger impact on trade between more distant countries. We test this implication in two steps, relying on a broad range of real and financial transactions measures, as well as several different metrics of distance (physical, linguistic, and internet). We first show that during the Great Trade Collapse of 2007-09 international transactions fell more between countries that are more distant along the various metrics, and find that the different distance measures magnify each other's respective impacts. We then focus on a longer panel analysis of trade in goods and show that trade is more volatile between more distant countries, with again a magnification pattern across metrics of distance.
Subjects: 
distance
gravity
volatility
international trade
international finance
Great Trade Collapse
JEL: 
F10
F30
Document Type: 
Working Paper
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