A traditional gravity model of the endogenous nexus between transportation costs and bilateral trade

Transportation costs are frequently cited as an important determinant of trade costs. The literature has hitherto paid little attention to the endogenous nexus between transportation costs and trade. In this paper, the impact of transportation costs on trade is re-examined by incorporating alternative determinants of transportation costs and trade in a gravity model of bilateral trade in nine Asian (Asia Nine) countries. We find that technology and cultural factors tend to stimulate bilateral trade between member countries. These findings are robust to different measures, econometric methods and period coverage.