GEP Research Paper 09/29
Is the International Border Effect Larger than the Domestic Border Effect? Evidence from U.S. Trade
Cletus C. Coughlin and Dennis Novy
Summary
Using trade flows within U.S. states, between states, and between states and foreign countries, we find that crossing an individual U.S. state's domestic border entails a relatively larger trade barrier than crossing the international U.S. border.
Abstract
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 within and between U.S. states. After controlling distance and country/state size, we find that relative to state-to-state trade, crossing an individual U.S. state’s domestic border entails a larger trade barrier than crossing the international U.S. border. This finding highlights the concentration of trade flows at the local level and the importance of factors such as informational barriers and transportation costs even for the relatively short distances associated with state-to-state trade.
Issued in November 2009
This paper is available in PDF format