To address the economic significance of national border effects, this paper provides evidence on two fundamental questions: (1) Do large border effects arise because of high perceived-price wedges between foreign and domestic products, or because imports and domestic goods are very close substitutes?; and (2) If price wedges are important, do they reflect distortionary barriers to trade or do they arise from nondistortionary factors, such as differences in transactions costs or product characteristics? I conclude that, while border effects may imply barriers, welfare costs, and a role for policy, distortions are probably not as substantial as initial border results suggested.
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Salvador Gil-Pareja & Rafael Llorca-Vivero & José A. Martínez-Serrano & Josep Oliver-Alonso, .
"The Border Effect in Spain,"
Working Papers
2004-28, FEDEA.
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Salvador Gil-Pareja & Rafael Llorca-Vivero & José A. Martínez-Serrano & Josep Oliver-Alonso, 2005.
"The Border Effect in Spain,"
The World Economy,
Blackwell Publishing, vol. 28(11), pages 1617-1631, November.
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