DP3407 Intra-national versus International Trade in the European Union: Why do National Borders Matter?

Author(s): Natalie Chen
Publication Date: June 2002
Keyword(s): border effects, EU countries, gravity equation, industries
JEL(s): F14, F15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3407

Based on the estimation of a theoretically consistent gravity equation, together with a careful computation of transportation costs across countries and industries, the Paper first provides estimates of ?border effects? among EU countries. The second objective is to examine the reasons for border effects. Contrarily to the previous findings reported in the literature, we show that national trade barriers do provide an explanation. In particular, technical barriers to trade, together with firm and product-specific information costs, increase border effects, whereas non-tariff barriers are not significant. Our results however suggest that these barriers are not the only cause since the spatial clustering of firms is also shown to matter.