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Networks and the disappearance of the intranational home bias

  • Aitor Garmendia

    (Deusto Business School)

  • Carlos Llano

    (Universidad Autónoma de Madrid)

  • Asier Minondo

    (Deusto Business School)

  • Francisco Requena

    (Universidad de Valencia)

Previous studies have shown that, not only countries, but also regions have a preference to trade within their administrative borders. Using unique trade flows data, we also find a large home bias in Spanish intranational trade. However, we show that this home bias disappears once we take into account the higher density of social and business networks within regions than between regions. We also find that the home bias does not disappear if intranational trade flows are measured in quantity rather than value. This fact might explain why previous studies on other European countries still find an intranational home bias, even when network effects are taken into account.

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Paper provided by Department of Applied Economics II, Universidad de Valencia in its series Working Papers with number 1124.

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Length: 10 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:eec:wpaper:1124
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  1. Santos Silva, J.M.C & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  2. Carlos Llano & Asier Minondo & Francisco Requena, 2010. "Is the Border Effect an Artefact of Geographic Aggregation?," Working Paper Series 1210, Department of Economics, University of Sussex.
  3. James E. Rauch & Vitor Trindade, 1999. "Ethnic Chinese Networks in International Trade," NBER Working Papers 7189, National Bureau of Economic Research, Inc.
  4. Russell Hillberry & David Hummels, 2002. "Intra-national Home Bias: Some Explanations," NBER Working Papers 9022, National Bureau of Economic Research, Inc.
  5. Condeço-Melhorado, Ana & Gutiérrez, Javier & García-Palomares, Juan Carlos, 2011. "Spatial impacts of road pricing: Accessibility, regional spillovers and territorial cohesion," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(3), pages 185-203, March.
  6. Hillberry, Russell & Hummels, David, 2008. "Trade responses to geographic frictions: A decomposition using micro-data," European Economic Review, Elsevier, vol. 52(3), pages 527-550, April.
  7. Turrini, Alessandro & van Ypersele, Tanguy, 2010. "Traders, courts, and the border effect puzzle," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 81-91, May.
  8. 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.
  9. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-16, May.
  10. Holger C. Wolf, 2000. "Intranational Home Bias In Trade," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 555-563, November.
  11. Daniel L. Millimet & Thomas Osang, 2007. "Do state borders matter for U.S. intranational trade? The role of history and internal migration," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 93-126, February.
  12. 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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