Home Bias,Border Effect and Internal Market Integration in China: Evidence from Inter‐provincial Value‐added Tax Statistics

This paper examines the home bias in regional trade and the integration of the internal market in China using inter‐provincial value‐added tax statistics. The administrative border between regions is an important trade barrier that results in home bias. Using a border effect model, we find evidence of home bias in provincial trade and relatively low border effects in domestic‐products trade in China. Moreover, the multilateral resistance model, based on a microeconomic foundation, also has strong power in explaining border effects in provincial trade. The empirical results imply that in accordance with some developed economies, China's market integration appears to have reached a high level.