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Aggregation bias, compositional change, and the border effect

Russell Hillberry

Canadian Journal of Economics/Revue canadienne d'économique, 2002, vol. 35, issue 3, 517-530

Abstract: Borders affect the composition, not only the level, of interregional trade. In disaggregated U.S. Commodity Flow data, border effects vary substantially across commodities. Substantial border–induced compositional change suggests the possibility that standard estimates suffer from aggregation bias arising from endogenous industry location patterns and the presence of zero observations in commodity–level trade. Adjusting for these effects reduces the estimate of the aggregate border effect from 20.9 to 5.7. JEL Classification: F14, F15 Biais d’agrégation, changement de composition, et effet de frontières. Les frontières affectent la composition et pas seulement le volume de commerce inter‐régional. Une analyse des données désagrégées des flux de commerce de biens des Etats‐Unis montre que l’effet de frontières varie substantiellement selon les biens. Le changement de composition du commerce engendré par les frontières suggère la possibilité que les estimations usuelles souffrent d’un biais d’agrégation résultant des patterns de localisation industrielle endogènes et de la présence d’observations nulles dans le commerce de certains biens. Un ajustement pour tenir compte de ces effets suggère que les effets de frontières passent de 20.9 à 5.7.

Date: 2002
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