This study suggests another explanation of the missing globalization puzzle typically observed in the empirical gravity models. In contrast to the previous research that focused on aggregated trade flows, we employ the trade flows in manufacturing products broken down by 25 three-digit ISIC Rev.2 categories. We estimate the distance coefficient using the log-linear specification of the standard as well as the generalized gravity equations. Our data set comprises trade flows for 22 OECD countries that span the time period from 1970 till 2000. We observe a substantial decline in the value of the distance elasticity in most manufacturing industries.
Gravity model missing globalization puzzle distance coefficient