Kiel Working Papers, Kiel Institute for World Economics
No 1159:
The Distance Puzzle: On the Interpretation of the Distance Coefficient in Gravity Equations
Claudia M. Buch, Jörn Kleinert and Farid Toubal
Abstract: Globalization seems to have diminished the importance of
geographical distance. However, empirical studies find that distance
coefficients in gravity equations change little over time. This paper
argues that changes in distance coefficients do not carry much information
on changes in distance costs over time. Changes in distance costs are to a
large extent picked up solely in the constant term of gravity models. The
distance coefficient instead measures the relative difference between far
way and close countries. A proportional fall in distance costs that leads
to a proportional increase in economic activity would be consistent with
constant distance coefficients.
Keywords: distance coefficients, gravity equations, globalization; (follow links to similar papers)
JEL-Codes: F0; F21; (follow links to similar papers)
25 pages, March 2003
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