Historical trade integration: globalization and the distance puzzle in the long twentieth century

In times of ongoing globalization, the notion of geographic neutrality expects the impact of distance on trade to become ever more irrelevant. However, over the last three decades a wide range of studies has found an increase in the importance of distance during the second half of the twentieth century. This paper tries to reframe this discussion by characterizing the effect of distance over a broader historical point of view. To make maximal use of the available data, we use a state-space model to construct a bilateral index of historical trade integration. Our index doubles to quadruples yearly data availability before 1950, allowing us to expand the period of analysis to 1880-2011. This implies that the importance of distance as a determinant of the changing trade pattern can be analyzed for both globalization waves. In line with O'Rourke (Politics and trade: lessons from past globalisations. Technical Report, Bruegel, 2009) and Jacks et al. (J Int Econ 83(2):185-201, 2011), we find that the first wave was marked by a strong, continuing decrease in the effect of distance. Initially, the second globalization wave started out similarly, but from the 1960s onward the importance of distance starts increasing. Nevertheless, this change is dwarfed by the strong decrease preceding it.