Economic Distance, Cultural Distance, and Openness in International Trade: Empirical Puzzles

Abstract

We estimate annual gravity equations for 1960-85 on a large sample, allowing us to identify time trends in the coefficients. Our results include the following: (1) The weight of exporter's supply has increased relative to importers' demand in explaining the long-run strong performancee of global exports; (2)The deterrent effect of economic and cultural distance on international trade increased until the early-to mid-1970s, at which poing it began to decline; (3) The openness variable devised by Sachs and Warner [1985], and show by them to be associated with faster economic growth, in indeed associated with greater imports as well, with increasing intensity over time. Lower tariffs and export taxes are also associated with greater imports, while the effect of free-trade groupings is more complex; and (4) The use of absolute price comparisons in the equation is not particularly fruitful and yields counterintuitive results.