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What's Inside Counts: Migration, Taxes, and the Internal Gains from Trade

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Author Info

  • Trevor Tombe

    (University of Calgary)

  • Jennifer Winter

Abstract

Like trade between countries, trade within countries is costly; unlike between countries, gains from trade within countries depend on migration and taxes, as gains through higher wages have tax consequences that gains through lower prices do not. We confirm the first point and flexibly measure large trade costs within Canada, China, and the United States. We further measure trade cost asymmetries to gauge the importance of non-geographic factors and find they are also large. To quantify the second point, we develop a model of trade featuring within-country factor mobility and, new to the literature, central government taxes and transfers. Taxes endogenously generate unbalanced internal trade and allow the model to match trade and income data well. We find (1) substantial gains from lowering internal trade costs and (2) gains to poor regions are particularly large, amplified by internal taxes and transfers.

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Bibliographic Info

Paper provided by Department of Economics, University of Calgary in its series Working Papers with number 2013-28.

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Date of creation: 05 May 2014
Date of revision: 05 May 2014
Handle: RePEc:clg:wpaper:2013-28

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Keywords: Internal trade; gains from trade; migration; income taxes;

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References

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  1. Thierry Mayer & Soledad Zignago, 2005. "Market Access in Global and Regional Trade," Working Papers 2005-02, CEPII research center.
  2. Russell Hillberry & David Hummels, 2002. "Intra-national Home Bias: Some Explanations," NBER Working Papers 9022, National Bureau of Economic Research, Inc.
  3. Stephen J. Redding, 2012. "Goods Trade, Factor Mobility and Welfare," NBER Working Papers 18008, National Bureau of Economic Research, Inc.
  4. 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.
  5. Pierre-Daniel G. Sarte & Esteban Rossi-Hansberg & Fernando Parro & Lorenzo Caliendo, 2013. "The impact of regional and sectoral productivity changes on the U.S. economy," Working Paper 13-14, Federal Reserve Bank of Richmond.
  6. Sandra PONCET, 2002. "A Fragmented China. Measure and Determinants of Chinese Domestic Market Disintegration," Working Papers 200221, CERDI.
  7. 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.
  8. Ina Simonovska & Michael E. Waugh, 2011. "The Elasticity of Trade: Estimates and Evidence," CESifo Working Paper Series 3356, CESifo Group Munich.
  9. Jonathan Eaton & Samuel Kortum, 2001. "Trade in Capital Goods," NBER Working Papers 8070, National Bureau of Economic Research, Inc.
  10. John F. Helliwell & Geneviève Verdier, 2001. "Measuring internal trade distances: a new method applied to estimate provincial border effects in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 1024-1041, November.
  11. Trevor Tombe, 2012. "The Missing Food Problem," Working Papers tt0060, Wilfrid Laurier University, Department of Economics, revised 2012.
  12. A. Kerem Coşar & Pablo D. Fajgelbaum, 2013. "Internal Geography, International Trade, and Regional Specialization," NBER Working Papers 19697, National Bureau of Economic Research, Inc.
  13. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
  14. Aguayo-Tellez, Ernesto & Muendler, Marc-Andreas & Poole, Jennifer Pamela, 2008. "Globalization and Formal Sector Migration in Brazil," Working Paper Series RP2008/22, World Institute for Development Economic Research (UNU-WIDER).
  15. Treb Allen & Costas Arkolakis, 2013. "Trade and the Topography of the Spatial Economy," NBER Working Papers 19181, National Bureau of Economic Research, Inc.
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Cited by:
  1. Trevor Tombe, 2012. "The Missing Food Problem," Working Papers tt0060, Wilfrid Laurier University, Department of Economics, revised 2012.

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