Intranational Home Bias in Trade

Abstract

A number of recent studies have found intranational trade to be excessive compared to international trade, based on a gravity specification. The preferred explanation for this finding has been the presence of formal and informal trade barriers, with associated welfare consequences. If such barriers were indeed the sole culprit, home bias should not exist on the subnational level. We find, however, that home bias is present within U.S. states, suggesting the presence of other causes of excessive home trade.

The trade-creating effects of business and social networks: evidence from France

“…This ratio is equal to 6.9 when network variables are omitted. Although those multiplicative factors could still seem to be large numbers for a country as integrated as France, they are comparable to what Wolf (2000) finds for the effect of states' borders inside the United States.…”

“…The border effect is evaluated at exp(1.93) = 6.9. Interestingly, both values are only slightly larger than what Wolf (2000) finds for trade inside the United States in 1993, which is also the year we consider.…”

“…The source and construction method of these data are comparable to the U.S. Commodity Flow Survey (CFS) recently used in Wolf (2000), Anderson and van Wincoop (2003) or Hillberry and Hummels (2003) for instance. The data is based on an annual survey of a stratified random sample of vehicles from the road transport industry to which the exhaustive collection of trade flows shipped by railway is added.…”

“…Focusing on flows inside a given country helps to isolate networks effects from other determinants. In the same spirit as Wolf (2000) for the United States, there can be in our framework no room for explanations based on trade policy or on transaction costs associated with the use of different currencies, which both have been mentioned as possible important trade impediments. 5 An additional novel aspect of our work is the use of "structural" specifications directly derived from a model of trade characterized by monopolistic competition, homebiased preferences, information and transport costs.…”

Cross-Border Electronic Commerce: Distance Effects and Express Delivery in European Union Markets

“…The distance factor not only refers to the geographical distance between the two countries but also to institutional and psychological factors such as home bias and (not) sharing a trade union, legal system, currency, language, or history [36]. The persistence of distance effects is not only due to transport costs but also to unfamiliarity [32] and even exists on the intranational level [61]. Distance can be used as a proxy for transport cost and border taxes as a proxy for economic distance [2].…”