It's Not Right But It's Okay: On the Measurement of Intra- and International Trade Distances*

Abstract

The measurement of the average intra-national distance has become the crucial issue in estimating the home bias in goods trade for countries for which no internal trade data exist. This note starts by discussing recent proposals to compute this measure. Exploring a detailed data set on the geographical distribution of economic activity in Germany, the paper finds that calculated distances are remarkably robust to alternative specifications. The analysis is then extended to international distances. The calculation of the average distance between Austria and Germany shows that the standard procedure of approximating these distances by the simple distance between the countries ' capitals can yield seriously distorted results. Finally, the distance measures are applied to estimate the home bias in German trade, finding a border effect of factor 5-10.

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