Regions are not countries: a new approach to the border effect

Research output: Working paperDiscussion paper

Abstract

We use a version of the Melitz (2003) model to calibrate the magnitude and impact of the border effect, the well-known empirical regularity that trade is much lower across a national border than would otherwise be expected. We calibrate total bilateral trade frictions as a parameter and show that frictions between nation states are systematically higher than those between sub-national states or regions. Using plausible counterfactual analysis, we assess the costs of independence for Scotland, Catalonia, & the Basque Country: the intellectual experiment that is performed is to suppose that the region on independence takes on the calibrated frictions of a counterfactual independent country. If the main change that comes with the independence of regions of larger countries is that their border with their former union partner comes to resemble a normal country border, then the trade costs of the break-up of countries into smaller states (even within the EU) are significant. The border effects associated with membership of the European Union or otherwise, are much lower than the border effect differences between countries and regions. As an illustration of this we produce a potential quantification of the trade costs of a British exit from the EU. Conversely, the potential gains from the European Union achieving the sort of integration seen within a nation state, a United States of Europe, are very large.
LanguageEnglish
Place of PublicationLondon
Volume9967
Publication statusPublished - 31 May 2014

Publication series

NameCEPR Discussion Papers
PublisherCentre for Economic Policy Research
No.9967

Fingerprint

Border effect
Friction
European Union
Trade costs
Nation-state
Country differences
Quantification
Small states
Trade frictions
Catalonia
Counterfactual analysis
Regularity
Costs
Exit
Bilateral trade
Experiment
Scotland

Keywords

  • border effect
  • independence
  • trade

Cite this

Comerford, D. (2014). Regions are not countries: a new approach to the border effect. (CEPR Discussion Papers; No. 9967). London.
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Comerford, D 2014 'Regions are not countries: a new approach to the border effect' CEPR Discussion Papers, no. 9967, London.

Regions are not countries : a new approach to the border effect. / Comerford, David.

London, 2014. (CEPR Discussion Papers; No. 9967).

Research output: Working paperDiscussion paper

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Comerford D. Regions are not countries: a new approach to the border effect. London. 2014 May 31. (CEPR Discussion Papers; 9967).