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Networks and the disappearance of the intranational home bias

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  • Garmendia, Aitor
  • Llano, Carlos
  • Minondo, Asier
  • Requena, Francisco

Abstract

Previous studies have shown that, not only countries, but also regions have a preference to trade within their administrative borders. Using unique trade flows data, we also find a large home bias in Spanish intranational trade. However, we show that this home bias tends to disappear once we take into account the higher density of social and business networks within regions than between regions. We also find that the home bias does not disappear if intranational trade flows are measured in quantity rather than value. This fact might explain why previous studies on other European countries still find an intranational home bias, even when network effects are taken into account.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 116 (2012)
Issue (Month): 2 ()
Pages: 178-182

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Handle: RePEc:eee:ecolet:v:116:y:2012:i:2:p:178-182

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Home bias; State borders; Intranational trade; Networks; Business groups; Spain;

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References

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  1. Santos Silva, Joao & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  2. Daniel L. Millimet & Thomas Osang, 2007. "Do state borders matter for U.S. intranational trade? The role of history and internal migration," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 93-126, February.
  3. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2005. "The trade-creating effects of business and social networks: evidence from France," Journal of International Economics, Elsevier, vol. 66(1), pages 1-29, May.
  4. Turrini, Alessandro & van Ypersele, Tanguy, 2010. "Traders, courts, and the border effect puzzle," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 81-91, May.
  5. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-16, May.
  6. Holger C. Wolf, 2000. "Intranational Home Bias In Trade," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 555-563, November.
  7. Carlos Llano‐Verduras & Asier Minondo & Francisco Requena‐Silvente, 2011. "Is the Border Effect an Artefact of Geographical Aggregation?," The World Economy, Wiley Blackwell, vol. 34(10), pages 1771-1787, October.
  8. Hillberry, Russell & Hummels, David, 2008. "Trade responses to geographic frictions: A decomposition using micro-data," European Economic Review, Elsevier, vol. 52(3), pages 527-550, April.
  9. James E. Rauch & Vitor Trindade, 1999. "Ethnic Chinese Networks in International Trade," NBER Working Papers 7189, National Bureau of Economic Research, Inc.
  10. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  11. Condeço-Melhorado, Ana & Gutiérrez, Javier & García-Palomares, Juan Carlos, 2011. "Spatial impacts of road pricing: Accessibility, regional spillovers and territorial cohesion," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(3), pages 185-203, March.
  12. Russell Hillberry & David Hummels, 2002. "Intra-national Home Bias: Some Explanations," NBER Working Papers 9022, National Bureau of Economic Research, Inc.
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Cited by:
  1. Lauren Cohen & Umit G. Gurun & Christopher J. Malloy, 2012. "Resident Networks and Firm Trade," NBER Working Papers 18312, National Bureau of Economic Research, Inc.
  2. Tamara Mata & Carlos Llano, 2013. "Social networks and trade of services: modelling interregional flows with spatial and network autocorrelation effects," Journal of Geographical Systems, Springer, vol. 15(3), pages 319-367, July.
  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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