International and Domestic Border Effects in China: Multilateral Resistances, Trade Substitution Patterns and Linguistic Differences

I conduct a comprehensive analysis of China’s international and domestic border effects. My results confirm the negative impact of administrative borders on exports. In my analysis, I account for multilateral resistance terms, which were omitted in previous relevant studies. My findings show that this omission underestimates both international and inter-provincial border effects while overstating the gap between them. I find a negative relationship between international and inter-provincial border effects, driven by provinces reducing inter-provincial trade as they increase international or intra-provincial trade. This substitution effect can, however, be mitigated through the coordinated growth of both international and intra-provincial exports. In the last step, I develop a linguistic distance metric to compare language gaps between Chinese provinces and between provinces and foreign partners, showing that linguistic differences mediate the negative impact of provincial borders on inter-provincial trade flows.