The Border Effects in Spain: An Industry-level Analysis

A gravity-model approach is used to estimate the magnitude of the internal border (home bias) and external border (frontier) effects in Spain using industry-level trade flows. We find that the average border effects are about 30 and 10, respectively. Next we explore the variation in the industry-specific border effects. First, the border effects are larger in highly product-differentiated industries. Second, the internal border effect is twice bigger for trade in intermediate goods than for trade in final goods. Third, conditioning on the geographic concentration of firms reduces significantly the internal border effect.