Disaggregated Trade Flows and the "Missing Globalization Puzzle"

This study analyzes the stability of the distance coeffi cient values over time in the generalized gravity equation of Bergstrand (1989) using both aggregate and disaggregated trade fl ows among 22 OECD countries recorded for the sample period covering 1970 until 2000. First of all, we fi nd that the missing globalization puzzle, typically observed in empirical gravity models for aggregate trade fl ows, largely disappears when one estimates a gravity model using disaggregated trade data at the level of individual industries. Secondly, we document that accounting for multilateral price resistance alone can provide some evidence against the missing globalization puzzle. At the same time, the results obtained for a traditional specifi cation of the gravity equation emphasizing the importance of disaggregated trade fl ows in explaining the distance puzzle remain largely intact.