TY  - JOUR
AU  - Hillberry,Russell
AU  - Hummels,David
TI  - Trade Responses to Geographic Frictions: A Decomposition Using Micro-Data
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11339
PY  - 2005
Y2  - May 2005
UR  - http://www.nber.org/papers/w11339
L1  - http://www.nber.org/papers/w11339.pdf
N1  - Author contact info:
Russell Hillberry
Department of Economics
University of Melbourne
3010, VIC, Australia
Phone: +61 3 8344 5354
E-Mail: rhhi@unimelb.edu.au

David Hummels
Krannert School of Management
403 West State Street
Purdue University
West Lafayette, IN  47907-1310
Tel: 765/494-4495
Fax: 765/494-9658
E-Mail: hummelsd@purdue.edu
AB  - A large literature has shown that geographic frictions reduce trade, but has not clarified precisely why. We provide insights into why such frictions matter by examining which parts of trade these frictions reduce most. Using data that tracks manufacturers' shipments within the United States on an exceptionally fine grid, we find that the pattern of shipments is extremely localized. Shipments within 5-digit zip codes, which have a median radius of just 4 miles, are 3 times larger than shipments outside the zip code. We decompose aggregate shipments into extensive and intensive margins, and show that distance and other frictions reduce aggregate trade values primarily by reducing the number of commodities shipped and the number of establishments shipping. We consider two broad reasons for these facts and conclude that trade in intermediate goods is the most likely explanation for highly localized shipments and the dominant role of the extensive margin. In addition, we find no evidence of state-level home bias when distances are measured precisely and trade is observed over a very fine grid.
ER  -