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

  • Trevor Tombe

    (University of Calgary)

  • Jennifer Winter

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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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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  1. Soledad Zignago & Thierry Mayer, 2005. "Market Access in Global and Regional Trade," Sciences Po publications 2005-02, Sciences Po.
  2. Jonathan Eaton & Samuel Kortum, 2001. "Trade in Capital Goods," NBER Working Papers 8070, National Bureau of Economic Research, Inc.
  3. Pierre-Daniel Sarte & Fernando Parro & Esteban Rossi-Hansberg & Lorenzo Caliendo, 2014. "The Impact of Regional and Sectoral Productivity Changes on the U.S. Economy," 2014 Meeting Papers 426, Society for Economic Dynamics.
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  8. Dennis Novy, 2013. "Gravity redux: measuring international trade costs with panel data," LSE Research Online Documents on Economics 59308, London School of Economics and Political Science, LSE Library.
  9. Sandra PONCET, 2002. "A Fragmented China. Measure and Determinants of Chinese Domestic Market Disintegration," Working Papers 200221, CERDI.
  10. Treb Allen & Costas Arkolakis, 2013. "Trade and the Topography of the Spatial Economy," NBER Working Papers 19181, National Bureau of Economic Research, Inc.
  11. Aguayo-Téllez, Ernesto & Muendler, Marc-Andreas & Poole, Jennifer P., 2010. "Globalization and Formal Sector Migration in Brazil," World Development, Elsevier, vol. 38(6), pages 840-856, June.
  12. 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.
  13. Trevor Tombe, 2012. "The Missing Food Problem," Working Papers tt0060, Wilfrid Laurier University, Department of Economics, revised 2012.
  14. A. Kerem Coşar & Pablo D. Fajgelbaum, 2013. "Internal Geography, International Trade, and Regional Specialization," NBER Working Papers 19697, National Bureau of Economic Research, Inc.
  15. Russell Hillberry & David Hummels, 2002. "Intra-national Home Bias: Some Explanations," NBER Working Papers 9022, National Bureau of Economic Research, Inc.
  16. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
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