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Is the Border Effect an Artefact of Geographic Aggregation?

  • Carlos Llano-Verduras

    (Universidad Autónoma de Madrid, Spain)

  • Asier Minondo

    (Deusto Business School, Spain)

  • Francisco Requena-Silvente

    (Universidad de Valencia, Spain)

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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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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  1. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
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  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.
  17. Russell Hillberry & David Hummels, 2002. "Intra-national Home Bias: Some Explanations," NBER Working Papers 9022, National Bureau of Economic Research, Inc.
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  19. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  20. 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.
  21. 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.
  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.
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