Intra-national versus international trade in the European Union: why do national borders matter?

The first objective of this paper is to estimate border effects among European Union countries. In this context, the specification of the gravity equation, together with the choice of the distance measure, are shown to be crucial for assessing the size of the border effect. The second objective is to evaluate the determinants of the cross-commodity variation in national border effects. Contrary to previous findings reported in the literature, we show that trade barriers do provide an explanation. In particular, technical barriers to trade, together with product-specific information costs, increase border effects, whereas non-tariff barriers are not significant. Our results further suggest that these barriers are not the only cause since the spatial clustering of firms is also found to matter.