National borders and international trade: evidence from the European Union

Abstract

In this paper the impact of national borders on international trade within the European Union is considered. Using a gravity model, I find that, averaged over all EU countries, intranational trade is about ten times as high as international trade with an EU partner country of similar size and distance. This relatively strong home bias suggests that even within the European Union national borders still have a decisive impact on trade patterns. JEL Classification: F02, F14, F15, O52Frontières nationales et commerce international: le cas de l'Union européenne. Ce mémoire examine l'impact des frontières nationales sur le commerce international à l'intérieur de l'Union européenne. On montre que, en moyenne pour tous les pays de l'Union européenne, le commerce intra-national est à peu près dix fois plus important que le commerce international avec un pays partenaire de l'Union européenne de même taille et à même distance. Ce degré relativement important de préférence nationale suggère que, même dans le cadre de l'Union européenne, les frontières nationales ont encore un impact déterminant sur les patterns de commerce.

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“…Instead, we use a remoteness index (REM OT E), which measures the distance between each i country and the rest of the world. It has been constructed following the proposal by Nitsch (2000) and Deardorff (1998), who indicated that the relative distances of trading partners have an impact on the volume of trade and, consequently, remote countries such as Australia and New Zealand can be expected to trade more with each other. 11 The hypothesized sign is that remoteness should not be a priori relevant for cross-border asset trade, since transportation costs for financial assets are zero.…”

“…• REM OT E -Remoteness: remoteness is defined following the definition by Nitsch (2000). According to this author, we can define the remoteness of a country i as the reciprocal of country j's GDP divided by the bilateral distance between country i and country j summed over all trading partners of country i (in the sample):…”