Working Paper: CEPR ID: DP9614
Authors: Keith Head; Thierry Mayer
Abstract: With increasing sophistication, economists have been estimating gravity equations for five decades. Robust evidence shows that borders and distance impede trade by much more than tariffs or transports costs can explain. We therefore advocate investigation of other sources of resistance, despite the greater difficulty involved in measuring and modeling them. From our selective review of recent findings, a unifying explanation emerges. A legacy of historical isolation and conflict forged a world economy in which neither tastes nor information are homogeneously distributed. Cultural difference and inadequate information manifest themselves most strongly at national borders and over distance.
Keywords: borders; distance; globalization; gravity; history; trade
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| historical isolation and conflict (N47) | dark costs associated with borders and distance (F55) |
| borders and distance (F55) | trade resistance (F19) |
| cultural differences (Z19) | trade resistance (F19) |
| inadequate information (D82) | trade resistance (F19) |
| dark costs associated with borders and distance (F55) | trade barriers (F14) |
| geographical distance (R12) | trade resistance (F19) |