Arnaud Mehl, Martin Schmitz, Cédric Tille, 29 September 2020

The geographical distance between two countries has a substantial impact on their economic relationship, affecting trade, foreign direct investment, and international banking linkages. Using data from the Great Recession and the COVID-19 pandemic, this column demonstrates that the financial linkages between countries located far from one another experience more volatility during crises than those between countries that are closer together. Policymakers concerned about their country’s exposure to global cycles should focus not only on their primary trading partners, but also on trade flows with more distant partners.

Reshad N Ahsan, Laura Panza, Yong Song, 18 April 2020

While the relationship between trade and war is ambiguous, some argue that diminished trade can pose a threat to global peace by lowering both the opportunity costs of war and the cost of raising an army. This column examines the relationship between Atlantic trade and war in Europe between 1640 and 1896, a period in which intra-European conflict decreased dramatically. It finds that the growth in Atlantic trade lowered the probability of intra-European conflict by 15 percentage points.

Inga Heiland, Andreas Moxnes, Karen-Helene Ulltveit-Moe, Yuan Zi, 07 January 2020

Evidence on the structure of the global container shipping network, an essential determinant of the costs of trade, is scarce. This column uses satellite data to document salient features of the network, and the expansion of the Panama Canal as a natural experiment to examine the impact this improvement to one link of the network had on worldwide trade. The analysis suggests that the expansion of the canal increased world real income by $20 billion. 

Jacques Melitz, Farid Toubal, 01 August 2019

Artificial intelligence has made spectacular progress in recent years. One particular source of high expectations is automatic translation and whether it will finally bring about the long-predicted death of distance in trade. This column examines the impact of a common language on bilateral trade and finds that the net result of reducing linguistic frictions with a set of trading partners is not apparent.The potential impact of machine translation on foreign trade remains up in the air.

Rebecca Freeman, Samuel Pienknagura, 19 September 2018

The negotiation of trade deals among distant trade partners is hot on policymakers’ agendas as a means to facilitate integration into global supply chains. This column examines the impact of trade agreements at varying levels of distance across product types. Granular bilateral trade data show that the boost from trade agreements is smaller over longer distances, and that this is primarily driven through the channel of intermediate goods.

Barry Eichengreen, Arnaud Mehl, Romain Lafarguette, 22 January 2016

There is ongoing debate about the impact of technological progress on the geography of trade and production. One view is that cheap technology has attenuated the effect of distance, while others argue that location still matters. This column explores the issue in the context of foreign exchange markets. It examines how submarine fibre optic cables that link locations to financial hubs have affected the location of transactions. The findings suggest, on balance, that technological progress has made proximity to a trading centre more important.

Kazutaka Takechi, 16 July 2015

With mega trade deals currently being negotiated, it is imperative to fully understand the various effects of trade policy. This column focuses on the implications of product quality and the type of trade costs for trade policy. Using data on agricultural prices from Japan, it argues that specific trade costs are more sensitive to geographic distance than ad valorem costs. The welfare effects of policy initiatives such as improving infrastructure may hence be larger than previously thought.

Diego Comin, Mikhail Dmitriev, Esteban Rossi-Hansberg, 26 November 2012

Geographical distance is a fundamental impediment to virtually all economic transactions. This column, using data on technology adoption in 161 countries over 140 years, argues that it also inhibits the spatial diffusion of technology. Moreover, it shows that technology spreads like an epidemic. As more people adopt a technology, the importance of distance to the technological leader diminishes until it eventually becomes irrelevant.

Céline Carrère, Jaime de Melo, 10 November 2009

The distance puzzle is the surprising finding that the volume of trade has become increasingly sensitive to distance. This column shows that low-income countries, which increasingly trade with geographically closer partners, drive the finding. This regionalisation of trade for low-income countries may reflect progress – or problems.

David Jacks, 12 September 2009

The sensitivity of bilateral trade flows to distance has remained unchanged or increased over the last half century, even in the face of unprecedented levels of global trade. This column shows that the effect of distance dramatically declined during the nineteenth century as trade costs fells, suggesting that trade costs may have not declined nearly as dramatically in recent decades as has been assumed.

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