Misaligned distance: Why distance can have a positive effect on trade in agricultural

This contribution argues and proves empirically that trade in agricultural products could be the higher the more distant two trading partners are. Distance in agricultural trade does not only reflect transport costs but also differences in climatic and cultivation conditions and, thus, in resource endowment of two trading partners. A gravity model is enhanced by different variables that capture differences in factor endowment. The model is estimated for an annual panel of agricultural trade flows of nearly 10,000 country pairs for the period 1970 to 2010. We show that the interpretation of the distance coefficient as transport costs’ effect is misleading as the transport cost related effect of distance is underestimated if the model does not account for differences in growing conditions. Particular, a trade increasing effect for North South distance shows up. Moreover, we find that this pattern is clearer the more disaggregated the product group is.

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 Record created 2017-04-01, last modified 2018-01-22

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