Information Matters: Comparing Some Theoretical Determinants of Border Effects in Trade

Chris M Wilson
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Chris M Wilson: School of Business and Economics, Loughborough University

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: There is widespread evidence that geographical borders reduce trade volumes. This paper presents a theoretical model capable of providing a succinct comparison of three broad explanations for this well-known 'border effect' or 'home bias', involving i) trade costs, ii) localized tastes, and iii) information frictions. Despite being traditionally under-researched as an explanation, it finds that information frictions often provide the relatively more powerful marginal effect in determining the border effect, and associated welfare.

Keywords: Home Bias; Information Frictions; Search Costs; Localized Tastes; Trade Costs (search for similar items in EconPapers)
JEL-codes: D83 F10 L13 (search for similar items in EconPapers)
Date: 2015-02, Revised 2015-02
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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