Internal Trade and Aggregate Productivity
The positive link between international trade and productivity is well established. However, research on magnitude and consequences of internal trade barriers, which inhibit the efficient geographic distribution of production within a country, is limited. Unique data from Canada and China provide an ideal opportunity to measure the magnitude - and effect on productivity - of barriers to internal trade. Using a flexible, micro-founded approach, we find between-province trade costs average 30% in Canada and over 50% in China (net of distance-effects). These costs are even higher under other plausible parameter values. Internal trade costs in both countries are significantly higher in poor regions. We further adapt a new-trade model to estimate the productivity impact of these barriers. Eliminating inter-provincial trade barriers increases productivity by over 15% in the median province and by over 8% for Canada as a whole, accounting for nearly half the productivity gap with the United States. For comparison, we find these benefits are larger than lowering international trade barriers by 20%. Internal trade barriers also account for over 40% of the regional income inequality across provinces. The gains are even larger for China. Further work will investigate the extent to which high internal trade barriers in developing countries contributes to cross-country income and productivity differences.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:red:sed012:314. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.