Does geography matter in international trade?

Answer 1

You can make a case for either yes or no answer. On the one hand, a disproportionately large amount of international trade happens within one region, Europe, so geography must matter. On the other hand, China trades with the faraway U.S. as willingly as with the nearby Japan, so geography must not matter all that much...

A theoretically sound answer, though, would go something like this. Geography imposes transportation costs, so it matters (hence, the European countries heavily trading with each other). But in many cases, the comparative advantage is large enough to cover transportation costs to virtually any location in the world (hence, China heavily trading with both U.S. and Japan).

This said, you might consider the fact that geography is not a very significant trade barrier compared to tariffs and non-tariff barriers erected by governments...

Answer 2

Up until the twentieth century it mattered A LOT. Most cities were created close to major waterways and the ones that weren't usually had a hard time growing. Also international trade several hundred years ago dealt with agriculture and natural resources. You needed to have fertile land and/or silver, gold, huntable wildlife, etc. or you were basically screwed. Now most of our goods are manufactured and can be produced pretty much anywhere. And we have more sophisticated methods of transporting those goods. So it has become much less important. Geography still comes into play though. If you wanted to manufacture key-chains and ship them worldwide you wouldn't to build your factory in the middle of the Sahara would you?