 Illusory border effects: distance mismeasurement inflates estimates of home bias in tradePost-Print from HAL Abstract: The measured effect of national borders on trade seems too large to be explained by the apparently small border-related trade barriers. This puzzle was first presented by McCallum (1995) and has gone on to spawn a large and growing literature on so-called border effects. We argue in this paper that, because distances are always mismeasured in the existing literature, the border effects may have been mismeasured in a way that leads to a systematic overstatement. Our goal here is to develop a correct measure of distance that would be consistent for international as well as intra-national trade flows. We show how use of the existing methods for calculating distance leads to "illusory" border and adjacency effects. We then apply our methods to data on interstate trade in the United States and inter-member trade in the European Union. We find that our new distance measure reduces the estimated border and adjacency effects but does not eliminate them. Thus, while we do not solve the border effect puzzle, we do show a way to shrink it. Date: 2010 Published in Steven Brakman; Peter van Bergeijk. The gravity model in international trade: advances and applications, Cambridge University Press, pp.165 - 192, 2010, 9780521196154 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03397888 Access Statistics for this paper More papers in Post-Print from HAL |
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