Historical trade integration: Globalization and the distance puzzle in the long 20th century

This paper studies the structure and the evolution of worldwide trade integration from 1880 up to 1995. Starting from historical trade and GDP data we use a state-space model to construct a bilateral historical trade index. This index is subsequently used to study globalization and the distance puzzle. The increased coverage of this index allows us to expand the period of analysis to include both the first and second globalization waves. We find that the first wave was marked by a strong diversification in the formation of trade links as well as a strong decrease in the effect of distance. The second globalization wave started with a strong decrease in the importance of distance which leveled out in the 1960s. While we do find some evidence of an increase in the importance of distance from the 1960s onwards, this is dwarfed by the strong decrease preceding it.