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Is the Border Effect an Artefact of Geographical Aggregation?

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  • Carlos Llano‐Verduras
  • Asier Minondo
  • Francisco Requena‐Silvente

Abstract

The existence of a large border effect is considered as one of the main puzzles of international macroeconomics. We show that the border effect is, to a large extent, an artefact of geographic concentration. In order to do so we combine international flows with intranational flows data characterised by a high geographic grid. At this fine grid, intranational flows are highly localised and dropping sharply with distance. The use of a small geographical unit of reference to measure intra-national bilateral trade flows allows to estimating correctly the negative impact of distance on shipments. When we use sector disaggregated export flows of 50 Spanish provinces in years 2000 and 2005 split into interprovincial and inter-national flows, we find that the border effect is reduced substantially and even becomes statistically not different from zero in some estimations.

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File URL: http://hdl.handle.net/10.1111/j.1467-9701.2011.01398.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 34 (2011)
Issue (Month): 10 (October)
Pages: 1771-1787

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Handle: RePEc:bla:worlde:v:34:y:2011:i:10:p:1771-1787

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  1. Yuriy Gorodnichenko & Linda L. Tesar, 2009. "Border Effect or Country Effect? Seattle May Not Be So Far from Vancouver After All," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 219-41, January.
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Cited by:
  1. Cletus C. Coughlin & Dennis Novy, 2009. "Is the International Border Effect Larger than the Domestic Border Effect? Evidence from U.S. Trade," CESifo Working Paper Series 2853, CESifo Group Munich.
  2. Aitor Garmendia & Carlos Llano & Asier Minondo & Francisco Requena, 2011. "Networks and the disappearance of the intranational home bias," Working Papers, Department of Applied Economics II, Universidad de Valencia 1124, Department of Applied Economics II, Universidad de Valencia.
  3. Diaz-Lanchas, Jorge & Llano, Carlos & Zofío, José Luis, 2013. "Trade margins, transport cost thresholds and market areas: Municipal freight flows and urban hierarchy," Working Papers in Economic Theory 2013/10, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

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