Heterogeneity and the distance puzzle

Egalement publié dans la série des Documents de travail du LEDA-DIAL, n°DT/2012-09.This paper shows that reduced heterogeneity of exporter-specific goods can provide adirect explanation of the distance puzzle. Using COMTRADE 4-digit bilateral trade datawe find that the elasticity of trade to distance has increased by 8% from 1962 to 2009.Theoretical foundations of the gravity equation indicate that the distance coefficient is theproduct of the elasticity of trade costs to distance and a measure of heterogeneity, e.g.the substitution elasticity between exporter-specific goods in the Armington framework.This parameter has increased by 13% from 1962 to 2009. The evolution of the distancecoefficient is thus compatible with a 4% reduction in the elasticity of trade costs to distance