The geography of gravity

Abstract

Although geography has been considered an important factor in international trade, spatial heterogeneity has not been fully investigated in standard gravity models. This paper contributes to the literature by investigating how gravity works geographically in trade. The geographically weighted regression (GWR) reveals spatial variations in estimated parameters. GWR regression results suggest even though physical distance is the same, economic distance can be different based on the location. Our regression results on the impact of Kyoto protocol show that while a loss of competitiveness is observed among non-European developed countries, no loss of competitiveness is clearly seen in the European Union.