Interested in how similar economies are? This new research paper develops a consistent measure for cross-national distance

Are you interested in how much two countries are connected? If you are a research scholar in business, you might work with cross-national distance data. Such data has so-far been delayed for several years, and there have been big debates about the validity of distance data. In this paper, we use information theory to develop a new concept and measure of cross-national distance. This ‘information distance’ measure resolves many (if not all) of the issues scholars identified with cross-national distance data. We link the measure to socio-political risks, and draw on financial markets for high-frequency data on cross-national distance. The paper shows that our new measure matches the underlying assumptions scholars associate with measures of cross-national distance, and that information distance has predictive power for relevant firm decisions above and beyond established measures, while being easy to compute, based in readily available data, and we provide the distance data for many country pairs and years. LINK