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‘Border’ effects of unobserved ‘borders’ in China’s internal trade

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  • Ziruo Li
  • Jionghao Huang
  • Xiaohua Xia

Abstract

Based on the input-output model, this article constructs a database of inter-provincial trade flows covering 26 industries and 28 provinces of China from 1992 to 2017. By heuristic search algorithm and iterative regression method, this article identifies the location of unobserved ‘borders’ in China’s internal trade. Existing in the Northeast, Northwest, and Southwest of China, the ‘borders’ reduce inter-regional trade by 36.11–39.10%, 47.85–52.43%, and 40.07–47.06% from 1992 to 2017, respectively. The results are robust against employing alternative methodology, industry-level trade flows as well as alternative measurement of transportation costs. Social networks, difference in industrial structure and their geographic structures might adjust slowly with the development of the economic and even affect the ‘border’ effects. The ‘border’ effects are neither administrative barriers nor statistical artefacts, but arise more from spatial heterogeneity related to fundamentals.

Suggested Citation

  • Ziruo Li & Jionghao Huang & Xiaohua Xia, 2022. "‘Border’ effects of unobserved ‘borders’ in China’s internal trade," Applied Economics, Taylor & Francis Journals, vol. 54(30), pages 3439-3481, June.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:30:p:3439-3481
    DOI: 10.1080/00036846.2021.1994519
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