The Missing Globalization Puzzle

Author/Editor:

Rikhil Bhavnani ; Natalia T. Tamirisa ; Arvind Subramanian ; David T. Coe

Publication Date:

October 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The failure of declining trade-related costs to be reflected in estimates of the standard gravity model of bilateral trade might be called the "missing globalization puzzle." This puzzle is most apparent in the estimated distance coefficients found in the literature, which show no evidence of declining in absolute value over time. In contrast, we find evidence of globalization, on both cross-section and panel data, reflected in a variety of measures of geography. Our estimation procedure is consistent with recent theoretical developments that emphasize the importance of relative costs for determining bilateral trade patterns. But the main reason our findings differ from previous studies is our nonlinear specification, which has a number of advantages over the standard log-linear specification.

Series:

Working Paper No. 02/171

Subject:

English

Publication Date:

October 1, 2002

ISBN/ISSN:

9781451858518/1018-5941

Stock No:

WPIEA1712002

Format:

Paper

Pages:

30

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