Is There a Relationship Between Trade and Distance?

Lack of regionalization, the lack of turning to your neighbors and creating a big enough market is one reason why countries in Latin America and Africa have been hit hardest by premature deindustrialization. Distance theory has paid off or has shown to be robust, though probably for different reasons than when it was initially put forth. McKinsey did this study where they studied hundreds of companies and they even came up with a term for it: globalization penalty. And so there's something about distance that is costly for the bottom line.