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Is the Border Effect an Artefact of Geographic Aggregation?

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Author Info

  • Carlos Llano-Verduras

    (Universidad Autónoma de Madrid, Spain)

  • Asier Minondo

    (Deusto Business School, Spain)

  • Francisco Requena-Silvente

    (Universidad de Valencia, Spain)

Abstract

The existence of a large border effect is considered as one of the main puzzles of international macroeconomics. We show that the border effect is, to a large extent, an artefact of geographic concentration. In order to do so we combine international flows with intranational flows data characterised by a high geographic grid. At this fine grid, intra-national flows are highly localised and dropping sharply with distance. The use of a small geographical unit of reference to measure intra-national bilateral trade flows allows to estimating correctly the negative impact of distance on shipments. When we use sector disaggregated export flows of 50 Spanish provinces in years 2000 and 2005 split into interprovincial and inter-national flows, we find that the border effect is reduced substantially and even becomes statistically not different from zero in some estimations.

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File URL: ftp://147.156.210.157/RePEc/pdf/eec_1108.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1108.

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Length: 24 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:eec:wpaper:1108

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Keywords: border effect; distance; interregional trade; international trade; Spanish provinces;

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References

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  1. Nitsch, Volker & Wolf, Nikolaus, 2009. "Tear Down this Wall : On the Persistence of Borders in Trade," The Warwick Economics Research Paper Series (TWERPS) 919, University of Warwick, Department of Economics.
  2. 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.
  3. 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.
  4. Salvador Gil-Pareja & Rafael Llorca-Vivero & José A. Martínez-Serrano & Josep Oliver-Alonso, . "The Border Effect in Spain," Working Papers 2004-28, FEDEA.
  5. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
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  7. Esteban Rossi-Hansberg, 2005. "A Spatial Theory of Trade," American Economic Review, American Economic Association, vol. 95(5), pages 1464-1491, December.
  8. Holger C. Wolf, 2000. "Intranational Home Bias In Trade," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 555-563, November.
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  10. Hans-Christian Heinemeyer & Max-Stephan Schulze & Nikolaus Wolf, 2008. "Endogenous Borders? The Effects of New Borders on Trade in Central Europe 1885-1933," CESifo Working Paper Series 2246, CESifo Group Munich.
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  12. Max-Stephan Schulze & Nikolaus Wolf, 2009. "On the origins of border effects: insights from the Habsburg Empire," Journal of Economic Geography, Oxford University Press, vol. 9(1), pages 117-136, January.
  13. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  14. Keith Head & Thierry Mayer, 2000. "Non-Europe: The magnitude and causes of market fragmentation in the EU," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(2), pages 284-314, June.
  15. Thierry Mayer & Keith Head, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center.
  16. Llano Verduras, C., 2004. "The Interregional Trade in the Context of a Multirregional Input-Output Model for Spain," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 22, pages 1-34, Diciembre.
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  18. Russell Hillberry & David Hummels, 2003. "Intranational Home Bias: Some Explanations," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1089-1092, November.
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  20. Carolyn L. Evans, 2003. "The Economic Significance of National Border Effects," American Economic Review, American Economic Association, vol. 93(4), pages 1291-1312, September.
  21. 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.
  22. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-21, May.
  23. Shang-Jin Wei, 1996. "Intra-National versus International Trade: How Stubborn are Nations in Global Integration?," NBER Working Papers 5531, National Bureau of Economic Research, Inc.
  24. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2005. "The trade-creating effects of business and social networks: evidence from France," Journal of International Economics, Elsevier, vol. 66(1), pages 1-29, May.
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Citations

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Cited by:
  1. Aitor Garmendia & Carlos Llano & Asier Minondo & Francisco Requena, 2011. "Networks and the disappearance of the intranational home bias," Working Papers 1124, Department of Applied Economics II, Universidad de Valencia.
  2. Cletus C. Coughlin & Dennis Novy, 2013. "Is the International Border Effect Larger than the Domestic Border Effect? Evidence from US Trade," CESifo Economic Studies, CESifo, vol. 59(2), pages 249-276, June.
  3. Diaz-Lanchas, Jorge & Llano, Carlos & Zofío, José Luis, 2013. "Trade margins, transport cost thresholds and market areas: Municipal freight flows and urban hierarchy," Working Papers in Economic Theory 2013/10, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

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