Country distance (COD): development and validation of a new objective measure

Abstract

We propose a multidimensional and objective measure, Country Distance (COD), as a comprehensive measure of distance between countries. Although the literature has called for a measure like this, in particular to support international decision-making by SMEs, the research carried out so far has relied on measures of limited focus. We use Partial Least Squares (PLS) to develop the COD index and investigate the relative importance of its three dimensions: socio-economic development, physical, and cultural and historical distance. We externally validate the measure in an analysis of the international market selection decisions of a sample of SMEs and country-level export flows.