Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272225 
Year of Publication: 
2023
Series/Report no.: 
IOS Working Papers No. 399
Publisher: 
Leibniz-Institut für Ost- und Südosteuropaforschung (IOS), Regensburg
Abstract: 
We present a novel two-stage gravity specification with period-varying bilateral trade cost terms. We test our specification to confirm the benchmark result on declining international distance elasticities over time, using two new data sets. Analyzing period-varying bilateral trade cost derived from our specification offers additional insights: first, globalization has erased more than a third of the effect of distance on trade cost, mostly until the mid-nineties. Second, identifying period-varying bilateral trade cost separately for domestic vs. international trade offers a natural illustration to globalization - international trade cost are less persistent than domestic trade cost. Finally, reflecting the importance of general equilibrium adjustment, total bilateral trade cost - relating partial bilateral trade cost to multilateral resistances - are more appropriate to reflect globalization than partial bilateral trade cost.
Subjects: 
Gravity
geography
panel models
JEL: 
C23
F15
F40
O18
Document Type: 
Working Paper

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