Abstract
Distance-sensitive products have a significant role in trade be tween neighboring countries that have not traded with each other because of political or economic reasons. Products that are sensitive to geographic distance are expected to become tradable between such countries, even though they may not be traced by common compara tive advantage measurements based on Hecksher-Ohlin theory. This effect is implemented in an attempt to forecast Arab-Israeli trade potential, together with the effect of economic distance. Economic distance in this case refers to products that are less affected by the Linder effect. The sensitivity of 66 different industries to economic and geographic distance is calculated by a gravity-type regression model that is based on Austria data and implemented in a later stage to predict candidate industries for trade between Israel and its Arab neighbors. Industries that will be characterized by high sensitivity to geographic distance and low sensitivity to economic distance are the best candidates for such trade.
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