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Thick and Thin Borders in the E uropean U nion: How Deep Internal Integration is Within Countries, and How Shallow Between Them
Author(s) -
Gallego Nuria,
Llano Carlos
Publication year - 2015
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12242
Subject(s) - gravity model of trade , heteroscedasticity , extrapolation , international trade , economics , international economics , gravity equation , bilateral trade , econometrics , mathematics , political science , statistics , law , china
The existence of large border effects is one of the main puzzles of international macroeconomics. The seminal paper by M c C allum found that trade between any two C anadian provinces was (on average) 22 times greater than trade between any C anadian province and any US state. Although various authors have estimated internal and external border effects for the whole E uropean U nion and some specific E uropean countries, none has done so in the manner that M c C allum's seminal paper, stymied by lack of data on region‐to‐region international trade flows. This study uses a novel data set that captures intra and international truck shipments between S panish regions and regions in seven E uropean countries during the period 2004–11. It computes internal and external border effects, offering novel results for aggregate flows and the importing countries, and estimates several specifications of the gravity equation, so as to tackle such issues as the multilateral resistance term, heteroscedasticity, and zero flows and non‐linear relation between trade and distance. The paper also adds a detailed analysis on the external border effect for each S panish exporting region and each of the seven E uropean countries considered. By means of this analysis, we shed new light on the relative integration between regions of these seven countries and S panish exporting regions. Finally, we conduct an extrapolation exercise, computing the ‘trade potentials’ that would be expected in a fully integrated E urope and estimating how long full integration would take to achieve between each S panish exporting region and each E uropean importing country. To this regard, two alternative scenarios are considered: one using the growth rates of the S panish exports before the crisis (2001–08) and other considering the post‐crisis growth rates (2011–13).