Product Heterogeneity, Intangible Barriers and Distance Decay. The Effect of Multiple Dimensions of Distance on Trade across Different Product Categories

Maureen B. M. Lankhuizen, Thomas de Graaff, Henri de Groot
(2015) Spatial Economic Analysis, 10(2), 137-159

DOI Online

We empirically examine the heterogeneity in the effects of multiple dimensions of distance on trade across detailed product groups. Using finite mixture modelling on bilateral trade data at the three-digit Standard International Trade Classification level, we endogenously group product categories into an a priori unknown number of segments based on estimated coefficients of multiple dimensions of distance in the gravity equation. We find that institutional distance, belonging to the same trade bloc and especially geographical distance are crucial and distinct factors for classifying commodities into homogeneous product groups.