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Is the Border Effect an Artefact of Geographic Aggregation?

  • Carlos Llano

    (Universidad Autónoma de Madrid)

  • Asier Minondo

    (Universidad de Deusto-ESTE)

  • Francisco Requena

    (Universidad de Valencia)

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, intranational 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 Economics, University of Sussex in its series Working Paper Series with number 1210.

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Date of creation: Oct 2010
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Handle: RePEc:sus:susewp:1210
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