Abstract:
This thesis aims to investigate the empirical relevance of the impact of sectoral competition on the increasing negative impact of geographic distance on international trade flows vis-a-vis the secular decline in the transportation and communication costs, which is known as the distance puzzle. Using disaggregated trade data, I find that as the international markets become more competitive; bilateral trade becomes more elastic to distance. My analysis reveal that increasing competition explains 20% of changes in the distance elasticity of trade between 1976 and 2016. I examine alternative hypothesis to explain the rising distance effect. My results imply that declining average tariff rates reduce the importance of distance on trade. I find that goods with increasing elasticity of substitution are likely to be more distance elastic over time. I also find that differentiated products are less distance sensitive compared to homogenous goods.
