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Can Business and Social Networks Explain the Border Effect Puzzle?

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Author Info
Combes, Pierre-Philippe
Lafourcade, Miren
Mayer, Thierry

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Abstract

McCallum (1995) shows in an influential contribution that, even when controlling for the impact of bilateral distance and region size, borders sharply reduce trade volumes between countries. We use in this Paper data on bilateral trade flows between 94 French regions, for 10 industries and two years (1978 and 1993) to study the magnitude and variations over time of trade impediments, both distance-related and (administrative) border-related. We focus on assessing the role that business and social networks can play in shaping trade patterns and explaining the border effect puzzle. Using a structural econometric approach, we show that intranational administrative borders significantly affect trade patterns inside France. The impact is of the same order of magnitude as in Wolf (2000) for trade inside the United States. We show that more than 60% of these (puzzling) intranational border effects can be explained by the composition of local labour force in terms of birth place (social networks) and by inter-plants connections (business networks). In addition, controlling for these network effects reduces the impact of transport cost on trade flows by a comparable factor. Thus, business and social networks that help to reduce informational trade barriers are shown to be strong determinants of trade patterns and to explain a large part of the border puzzle.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3750.

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Date of creation: Feb 2003
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Handle: RePEc:cpr:ceprdp:3750

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Keywords: border effects gravity networks

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration

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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.:
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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.)

  1. Ben Dolman, 2007. "Patterns of Migration, Trade and Foreign Direct Investment across OECD Countries," DEGIT Conference Papers c012_030, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  2. Toshihiro Okubo, 2004. "Intra-industry Trade and Production Networks," HEI Working Papers 13-2004, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
  3. John Bryant & Murat Genç & David Law, 2005. "Trade and Migration to New Zealand," ERSA conference papers ersa05p192, European Regional Science Association. [Downloadable!]
    Other versions:
  4. Frank A.G. den Butter & Robert H.J. Mosch, 2003. "Trade, Trust and Transaction Cost," Tinbergen Institute Discussion Papers 03-082/3, Tinbergen Institute. [Downloadable!]
  5. Vello Vensel, 2004. "Operation of Business Supporting Networks: Evidence from an EU Candidate Country," Working Papers 117, School of Economics and Business Administration, Tallinn University of Technology. [Downloadable!]
  6. Kaie Kerem & Vello Vensel, 2005. "Theory and Empirical Evidence of Business Support Networks," Working Papers 129, School of Economics and Business Administration, Tallinn University of Technology. [Downloadable!]
  7. Kyoji Fukao; Toshihiro Okubo, 2004. "Why Has the Border Effect in the Japanese Market Declined?," HEI Working Papers 12-2004, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
  8. Steven Brakman & Harry Garretsen, 2003. "Rethinking the "New' Geographical Economics," Regional Studies, Taylor and Francis Journals, vol. 37(6-7), pages 637-648, August. [Downloadable!] (restricted)
  9. Lewis Evans and Patrick Hughes, 2003. "Competition Policy in Small Distant Open Economies: Some Lessons from the Economics Literature," Treasury Working Paper Series 03/31, New Zealand Treasury. [Downloadable!]
  10. Canavire Bacarreza, Gustavo Javier & Ehrlich, Laura, 2006. "The Impact of Migration on Foreign Trade: A Developing Country Approach," MPRA Paper 1090, University Library of Munich, Germany. [Downloadable!]
  11. Agnes Benassy-Quere & Lionel Fontagne & Amina Lahreche-Revil, 2003. "Tax Competition and Foreign Direct Investment," Working Papers 2003-17, CEPII research center. [Downloadable!]
  12. Combes, Pierre-Philippe & Lafourcade, Miren, 2003. "Core-Periphery Patterns of Generalized Transport Costs: France, 1978-98," CEPR Discussion Papers 3958, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Anindya Banerjee & Paolo Zanghieri, 2003. "A New Look at the Feldstein-Horioka Puzzle using an Integrated Panel," Working Papers 2003-22, CEPII research center. [Downloadable!]
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