Competition, Spatial Location of Economic Activity and Financial Issues
Edited by Miroslav N. Jovanović
Chapter 14: Persistent Distance Decay Effects in International Trade
Gert-Jan M. Linders, Henri L.F. de Groot, Raymond J.G.M. Florax and Peter Nijkamp1 1 INTRODUCTION Economic integration and physical distance can be seen as adverse phenomena. But inter-regional and international trade offer many bridge functions between geographic entities. This chapter aims to map out the impact of distance on trade. Clearly, physical distance strongly conditions bilateral and multilateral trade. Many empirical studies of trade patterns all over the world have confirmed this proposition. In a broader context, a strong distance-decay pattern has also been found for the spatial distribution of portfolio investments and foreign direct investments. Besides the size of the distance effect in trade, its development over time has also been the subject of much research in the literature. This interest was spurred by speculative contributions by Cairncross (1997) and Friedman (2005) suggesting the ‘death of distance’, ‘flattening of the world’ and the world turning into a ‘global village’. This chapter intends to enhance our understanding of the impact of distance-related trade barriers on bilateral trade. Using meta-analysis, we shall review the existing empirical evidence on distance decay from the gravity-model literature on bilateral trade. We discuss and interpret the persistence of the distance effect in trade, and aim to identify clues for understanding its variation. We address three salient issues that emerge from the empirical literature on this topic. First, the size of the distance effect on trade appears to be surprisingly high if it is to be explained by physical transport barriers alone. This suggests that intangible...
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