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Can Business and Social Networks Explain the Border Effect Puzzle?

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Author Info
Thierry Mayer
Pierre-Philippe Combes
Miren Lafourcade

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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 2 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 intra-national 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) intra-national 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 Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 330.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:330

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Related research
Keywords: Gravity; border effects; networks;

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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.:

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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. Nicolas Sauter, . "Talking Trade: Language Barriers in Intra-Canadian Commerce," FIW Working Paper series 023, FIW. [Downloadable!]
  3. Toshihiro Okubo, 2004. "Intra-industry Trade and Production Networks," HEI Working Papers 13-2004, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
  4. John Bryant & Murat Genç & David Law, 2005. "Trade and Migration to New Zealand," ERSA conference papers ersa05p192, European Regional Science Association. [Downloadable!]
    Other versions:
  5. 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!]
  6. 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!]
  7. 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!]
  8. 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!]
  9. 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!]
  10. Agnes Benassy-Quere & Lionel Fontagne & Amina Lahreche-Revil, 2003. "Tax Competition and Foreign Direct Investment," Working Papers 2003-17, CEPII research center. [Downloadable!]
  11. 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!]
  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!]
  14. 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)
  15. Jacques Poot & Anna Strutt, 2009. "International Trade Agreements and International Migration," Working Papers in Economics 09/06, University of Waikato, Department of Economics. [Downloadable!]
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