This paper shows that reduced heterogeneity of exporter-specific goods can provide a
direct explanation of the distance puzzle. Using COMTRADE 4-digit bilateral trade data
we find that the elasticity of trade to distance has increased by 8% from 1962 to 2009.
Theoretical foundations of the gravity equation indicate that the distance coefficient is the
product of the elasticity of trade costs to distance and a measure of heterogeneity, e.g.
the substitution elasticity between exporter-specific goods in the Armington framework.
This parameter has increased by 13% from 1962 to 2009. The evolution of the distance
coefficient is thus compatible with a 4% reduction in the elasticity of trade costs to distance.
