Distance and Home-market effect: Japanese Local Port Trades with the Asia Region

[Abstract] An increasing returns model with trade cost predicts that firms are located in a larger economy. We recognize that this theory will be more appropriately applied in a context of local regional economy than a nation as a whole. However, as we move on to focus on local regions within a country, we expect to observe ‘epicenter’ (agglomeration) force for domestic market and ‘periphery’ (dispersion) force for export-platform in a complex way. With a very innovative dataset for international trades of Japanese local ports, this paper investigates Japanese local port exports in an empirical gravity model. We obtained strong evidence that difference in international distance due to locations of local ports has significant effect in local port export. More importantly, we found that distance elasticity is larger in absolute value for an industry with higher Asia-intensity and more differentiated products.