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Theoretical and Applied Economics
No. 1 / 2017 (610), Spring

On the life and death of distance

University of Macedonia, Thessaloniki, Greece

Abstract. Buch et al. (2004) explain the “distance puzzle” suggesting that the distance coefficient only measures the importance of bilateral trade with distant countries relative to closer ones, while a large part of the positive effect of decreased distance costs on trade volumes can be captured in the intercept – expected to be positively influenced. Comparing the course of the intercept when trade growth is included to when removed (using an adjusted specification for the model), we do not seem to find any evidence that the impact of (assumed) decreased distance costs can be traced in the intercept. We also find no “death of distance” in “relative” trade over time, consistent with the majority of literature.

Keywords: gravity model, distance puzzle, distance coefficient, bilateral trade.

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The Economicity. The Epistemic Landscape, Marin Dinu, 2016


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