The Changing Incidence of Geography
James E. Anderson, Yoto V. Yotov
American Economic Review · 2010 · Volume 100 · Issue 5
Abstract
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, sellers' incidence is on average some five times higher than buyers' incidence. 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. (JEL F11, F14, R12)
Keywords
Neoclassical Models of Trade, Country and Industry Studies of Trade, Size and Spatial Distributions of Regional Economic Activity
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