The Missing Globalization Puzzle: Evidence of the Declining Importance of Distance

Abstract

Globalization can be characterized as the rapid increase in international trade spurred by advances in technology that have decreased the cost of trade. As costs have declined, so too, it would seem, should the estimated distance coefficient in the gravity model of bilateral trade. But a standard empirical result is that these estimated coefficients have been broadly stable, a result that might be called the “missing globalization puzzle.” In contrast to results from the literature, we find evidence of globalization reflected in the estimated coefficients on distance in both cross-section and panel data. Our estimation procedures fully incorporate the information contained in observations where bilateral trade is zero and hence do not suffer from the potential estimation bias when observations where bilateral trade is zero are arbitrarily excluded from the sample. IMF Staff Papers (2007) 54, 34–58. doi:10.1057/palgrave.imfsp.9450003

Small and flat worlds: A complex network analysis of international trade in crude oil

“…Participation of a greater number of countries in international trade is accompanied by geographical diversification of trade relationships, a flatter world as Thomas Friedman has suggested [14]. In contrast to small world that stresses the spatial proximity of trade connections, flatter worlds are consistent with a more globalized world economy, a larger world that is driven by trade connections over longer distances or spatially dispersed locations [15,16]. The flat world thesis was first proposed by O'Brien over twenty years ago [17].…”

Disaggregated Trade Flows and the 'Missing Globalization Puzzle'

“…As mentioned in the introduction, the missing globalization puzzle is a rather well established artifact in the empirical trade literature, as recently shown in Disdier and Head (2008) and discussed earlier in Coe et al (2002), Coe et al (2007), and in Leamer and Levinsohn (1995), among others. All these works share a common conclusion that contrary to popular notions of globalization, the world is not "getting smaller".…”

“…In addition to the bonus vetus OLS of Baier and Bergstrand (2007) applied in the current paper, one may consider such alternative estimation methods as Anderson and van Wincoop (2003) and Feenstra (2002), where different ways of accounting for multilateral trade resistance terms are introduced. Similarly, one may cite the approach of Coe et al (2007), which is based on direct estimation of the parameters of the gravity equations using the nonlinear optimization techniques as well as the Tobit model applied in Felbermayr and Kohler (2006). Another relevant extension of the current work is the approach proposed in Head and Mayer (2002).…”

“…For example, Coe et al (2007) suggest solving the missing globalization puzzle empirically by reconsidering a method for estimation of the parameters of the gravity model. In particular, they propose dispensing with the (historically most popular) log-linear form of the gravity equation and directly considering the nonlinear specification.…”

Bilateral tax treaties and US foreign direct investment financing modes

“…For some studies, 4 The extent of the bias is proportional to the share of the sample that is screened or truncated. See Greene(2003) for an explanation and Coe et al (2007) for a discussion relating to trade data . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 like the one here, stock data is not available for some measures (such as the various financing modes) and so this last approach is not an option.…”