Border Effects Without Borders: What Divides Japan's Internal Trade?

Abstract

This paper identifies a “border” effect in the absence of a border. The finding that trade between East- and West-Japan is 23.1 to 51.3 percent lower than trade within both country parts, is established despite the absence of an obvious east-west division due to historical borders, cultural differences or past civil wars. Post-war agglomeration processes, reflected by the contemporaneous structure of Japan’s business and social networks, rather than cultural differences, induced by long-lasting historical shocks, are identified as an explanation for the east-west bias in intra-Japanese trade.

Keywords: border effects, gravity equation, intra-national Trade, Japan

JEL Classification: F140, F150, F120