GEP 18/13: Differential effects of internal and external distances on trade flows: The case of Pakistan

Abstract

This paper examines the differential effects of domestic and international transportation distances on exports by Pakistan firms. It uses novel data on exports at the transaction-level and on the location of firms within the country, ports of entry/exit and modes of shipment over time. The study exploits a shift in the US security policy and IV estimation to circumvent the potential endogeneity of manufacturing location choice. The paper finds that access to trade-processing facilities is a key limiting factor to exports. On average, the marginal trade-restricting effect of domestic distance to port of exit is larger than that of international distance to ports of entry in export markets. Both elements of distance have negative effects on the intensive margin of firms’ exports and positive effects on extensive margins, albeit with absolutely larger effects due to domestic than international distance.

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Authors  

Salamat Ali, Richard Kneller and Chris Milner

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