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Trade Costs and Provincial Heterogeneity in Italy

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  • Michele Fratianni

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Francesco Marchionne

    (Universita Politecnica delle Marche,)

Abstract

We test the hypothesis that higher economic development is associated with lower trade costs. Using different methods to control for multilateral resistance, we apply two alternative gravity equations (GE). In the first, we estimate total exports from 103 Italian provinces to 188 countries over the period 1995-2004. In the second, we estimate sectoral exports and then construct provincial trade cost elasticities. Italian provinces are heterogeneous with respect to trade costs. The two versions of GE are qualitatively the same but quantitatively different suggesting that other factors than trade costs are at play, possibly agglomeration externalities.

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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2008-03-fratianni-marchionne.pdf
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2008-03.

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Date of creation: Feb 2008
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Handle: RePEc:iuk:wpaper:2008-03

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Keywords: trade costs; heterogeneity; distance; gravity equation;

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  1. Venables, Anthony J, 1996. "Equilibrium Locations of Vertically Linked Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 341-59, May.
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  9. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 7-46, 04.
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