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N° 2003-02 |
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| January |
| Can Business and Social Networks Explain
the Border Effect Puzzle? |
Pierre-Philippe Combes
Miren Lafourcade
Thierry Mayer |
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| McCallum (1995) shows in an
influential contribution that, even when controlling for the impact of bilateral
distance and region size, borders sharply reduce trade volumes between countries.
We use in this paper data on bilateral trade flows between 94 French regions,
for 10 industries and 2 years (1978 and 1993) to study the magnitude and variations
over time of trade impediments, both distance-related and (administrative) border-related.
We focus on assessing the role that business and social networks can play in shaping
trade patterns and explaining the border effect puzzle. Using a structural econometric
approach, we show that intra-national administrative borders significantly affect
trade patterns inside France. The impact is of the same order of magnitude as
in Wolf (2000) for trade inside the United States. We show that more than 60%
of these (puzzling) intra-national border effects can be explained by the composition
of local labour force in terms of birth place (social networks) and by inter-plants
connections (business networks). In addition, controlling for these network effects
reduces the impact of transport cost on trade flows by a comparable factor. Thus,
business and social networks that help to reduce informational trade barriers
are shown to be strong determinants of trade patterns and to explain a large part
of the border puzzle. |
Abstract |
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| Border effect, gravity equation, networks |
Keywords |
| F12, F15 |
JEL classification |
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