Coordination cost and the distance puzzle

Noblet, Sandrine and Belgodere, Antoine (2010): Coordination cost and the distance puzzle.

Abstract

Since 1960, transport costs have been falling, but international exchange did not become less sensitive to distance. We propose the following explanation for this puzzle: in a Dixit-Stiglitz framework, a decrease in transport cost favors trade, which may increase the international specialization (i.e. the number of varieties of intermediate goods used in production). An increased international specialization increases the need for coordination, and makes relatively more important for downstream firms to be close to their suppliers. As a result, trade increases with all partners, but more quickly for neighbors than for distant countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Transport cost ; coordination cost ; international trade ; distance puzzle
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation

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