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CEP discussion paper
Is the International Border Effect Larger than the Domestic Border Effect? Evidence from U.S. Trade
Cletus C. Coughlin and Dennis Novy September 2012
Paper No' CEPDP1162:
Full Paper (pdf)

JEL Classification: F10; F15

Tags: international border; intranational home bias; domestic border; gravity; trade costs; distance

Many studies have found that international borders represent large barriers to trade. But how do international borders compare to domestic border barriers? We investigate international and domestic border barriers in a unified framework. We consider a data set of exports from individual U.S. states to foreign countries and combine it with trade flows between and within U.S. states. After controlling for distance and country size, we estimate that relative to state-to-state trade, crossing an individual U.S. state’s domestic border appears to entail a larger trade barrier than crossing the international U.S. border. Due to the absence of governmental impediments to trade within the United States, this result is surprising. We interpret it as highlighting the concentration of economic activity and trade flows at the local level.