Traders, Courts, and the Home Bias Puzzle

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Traders, Courts, and the Home Bias Puzzle

Author Info

Alessandro Turrini () (Department of Economics, University of Bergamo)
Tanguy Van Ypersele () (Department of Economics, University of Namur)

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Abstract

Recent evidence shows that the "home bias puzzle" in international trade may be associated with the mere presence of national borders (McCallum (1995)). In this paper we provide a theoretical framework to explain why borders may matter so much for trade. Our argument is that even between perfectly integrated and similar countries the legal system di¤ers, so that legal costs are higher when business is done abroad. Using a matchig model of trade, we show that the home bias is associated with both less searching foreign sellers in the home market and a lower probability of cross-border matches being accepted. In industries characterized by high turnover legal costs may reduce trade because reducing the mass of searching foreign sellers and increasing at the same time that of searching domestic sellers.

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Paper provided by University of Bergamo, Department of Economics in its series Working Papers with number 0205.

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Length: 28 pages
Date of creation: Oct 2002
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Handle: RePEc:brg:wpaper:0205

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Paper
- Turrini, Alessandro Antonio & van Ypersele, Tanguy, 2002. "Traders, Courts and the Home Bias Puzzle," CEPR Discussion Papers 3228, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics. [Downloadable!]
- James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March. [Downloadable!] (restricted)
Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," International Trade 0012003, EconWPA. [Downloadable!]
- Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley. [Downloadable!]
- Maurice Obstfeld & Kenneth Rogoff, 2006. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series 1010, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
Dani Rodrik, 2000. "How Far Will International Economic Integration Go?," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 177-186, Winter. [Downloadable!] (restricted)
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Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics. [Downloadable!]
Other versions:
- Feenstra, Robert C, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)
Marimon, R. & Zilibotti, F., 1998. "Unemployment vs. Mismatch of Talents," Papers 661, Stockholm - International Economic Studies.
John F. Helliwell, 1996. "Do National Borders Matter for Quebec's Trade?," NBER Working Papers 5215, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Keith Head & Thierry Mayer, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center. [Downloadable!]
James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December. [Downloadable!] (restricted)
Chen, Natalie, 2002. "Intra-national versus International Trade in the European Union: Why do National Borders Matter?," CEPR Discussion Papers 3407, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Chen, Natalie, 2004. "Intra-national versus international trade in the European Union: why do national borders matter?," Journal of International Economics, Elsevier, vol. 63(1), pages 93-118, May. [Downloadable!] (restricted)
Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter. [Downloadable!] (restricted)
Other versions:
- Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "Pattenrs Of Firm Entry And Exit In U.S. Manufacturing Industries," Papers 1-88-2, Pennsylvania State - Department of Economics.
Volker Nitsch, 2000. "National borders and international trade: evidence from the European Union," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 1091-1105, November. [Downloadable!] (restricted)
John F. Helliwell, 1996. "Do National Borders Matter for Quebec's Trade?," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 507-22, August. [Downloadable!] (restricted)
Casella, Alessandra, 1992. "Arbitration in International Trade," CEPR Discussion Papers 721, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
James E. Anderson & Douglas Marcouiller, 1999. "Trade, Insecurity, and Home Bias: An Empirical Investigation," NBER Working Papers 7000, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
James E. Rauch, 1996. "Trade and Search: Social Capital, Sogo Shosha, and Spillovers," NBER Working Papers 5618, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Alessandra Casella., 1992. "Arbitration in International Trade," Center for International and Development Economics Research (CIDER) Working Papers C92-003, University of California at Berkeley. [Downloadable!]
Alessandra Casella, 1992. "Arbitration in International Trade," NBER Working Papers 4136, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Henk Kox & Arjan Lejour, 2005. "Regulatory heterogeneity as obstacle for international services trade," CPB Discussion Papers 49, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
L. Colombo & L. Lambertini & A. Mantovani, 2003. "Endogenous Transportation Technology in a Cournot Differential Game with Intraindustry Trade," Working Papers 479, Dipartimento Scienze Economiche, Università di Bologna. [Downloadable!]
Noussair, Charles & Plott, Charles & Riezman, Raymond, 2003. "Production, trade, prices, exchange rates and equilibration in large experimental economies," Working Papers 1188, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
Other versions:
- Noussair, Charles & Plott, Charles & Riezman, Raymond, 2007. "Production, trade, prices, exchange rates and equilibration in large experimental economies," European Economic Review, Elsevier, vol. 51(1), pages 49-76, January. [Downloadable!] (restricted)

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