The Tyranny of Distance and the Gravity of Resources

Abstract

To what extent does geography remain an important determinant of comparative advantage and factor incomes in resource markets? We estimate gravity models for resources and find that some minerals and fuels, particularly iron ore and gas, do have very high elasticities of trade with respect to distance. To assess the implications of this we then consider a simple counterfactual where location advantages are eliminated. We find that for a few countries, including Australia and New Zealand, distance barriers have a large impact of their market share.

Global Shrinkage of Space and the Hub-and-Spoke System in the Global Trade Network

“…Since the distance friction accounts for the largest part of the transportation cost, country-to-country crow-fly distance has often been used as a proxy for the transport cost to predict patterns of international trade flows (Bergstrand 1985;Buch et al 2004;Coe et al 2007;Gallego et al 2015). Distance has also been presented as a strong impedance in economic development and in accessibility to foreign markets in international trade studies (Behrens et al 2006;Blainey 1966;Fratianni and Marchionne 2012;Redding and Sturm 2008;Robertson and Robitaille 2017).…”

“…Distance has also been presented as a strong impedance in economic development and in accessibility to foreign markets in international trade studies (Blainey 1966, Behrens et al 2006, Redding and Sturm 2008, Fratianni and Marchionne 2012, Robertson and Robitaille 2017.…”