Business Intelligence

Disaggregated Trade Flows And The"Missing Globalization Puzzle"

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Executive Summary

This paper analyzes the stability of the distance coefficient values over time in the generalized gravity equation of Bergstrand (1989) using both aggregate and disaggregated trade flows among 22 OECD countries recorded for the sample period covering 1970 until 2000. The authors estimate the gravity equation both in its traditional form as well as by taking into account multilateral resistance as suggested in Baier and Bergstrand (2007). First of all, they find that the missing globalization puzzle, typically observed in empirical gravity models for aggregate trade flows, largely disappears when one estimates a gravity model using disaggregated trade data at the level of individual industries. Secondly, they document that accounting for multilateral price resistance alone can provide some evidence against the missing globalization puzzle.

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