Abstract
Based on a general setup, this article shows that distance consistently accounts for about 40% of the international trade costs over the years for both developed and developing countries if we assume that trade costs take the iceberg form. The result helps us have a clear perspective of the relative importance of distance in restricting international trade.
Notes
1 The simple average of distance between country pairs in our sample is 4557.26 miles and only 1.91% of country pairs are within 375 miles.
2 Waugh (Citation2010) shows that problems of heteroskedasticity and zero trade flows are mitigated for the size-normalized gravity model.
3 The simple average of over years is 39.56% and the slope is –0.003.