The Changing Incidence of Geography
The incidence of bilateral trade costs is calculated here using neglected properties of the structural gravity model, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992- 2003, incidence is on average some five times higher for sellers than for buyers. Sellers' incidence falls over time due to specialization, despite constant gravity coefficients. This previously unrecognized globalizing force drives big reductions in 'constructed home bias', the disproportionate predicted share of local trade; and large but varying gains in real GDP.
The research in this paper was supported by Industry Canada. We thank Mark Brown, Serge Coulombe, John Helliwell and the participants in the Advances in International Trade Workshop at Georgia Tech, and the Fall 2008 Midwest Meetings in International Trade for useful comments. We gratefully acknowledge the very detailed and useful comments of two referees. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-86, December. citation courtesy of