Do Borders Really Slash Trade? A Meta-Analysis

Abstract

National borders reduce trade, but most estimates of the border effect seem puzzlingly large. We show that major methodological innovations of the last decade combine to shrink the border effect to a mere 28% reduction in international trade flows worldwide. The border effect varies across regions: it is large in emerging countries, but close to zero in OECD countries. For the computation we collect 1,271 estimates of the border effect reported in 61 studies, codify 32 aspects of study design that may influence the estimates, and use Bayesian model averaging to take into account model uncertainty. Our results suggest that methods systematically affect the estimated border effects. Especially important is the level of aggregation, measurement of internal and external distance, control for multilateral resistance, and treatment of zero trade flows. We find no evidence of publication bias.

Keywords: Bayesian model averaging, bilateral trade, borders, gravity, metaanalysis, publication selection bias

JEL Classification: F14, F15