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 one-third reduction in international trade flows worldwide. 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 in meta-analysis. 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 also find that the magnitude of the border effect is associated with country characteristics, such as size and income.
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Supplementary information accompanies this article on the IMF Economic Review website (www.palgrave.com/journals)
*Tomas Havranek is Senior Economist and Advisor to the Board at the Research Department of the Czech National Bank and Associate Professor at Charles University, Prague; his email address is: tomas.havranek@cnb.cz. Zuzana Irsova is Post-Doc Researcher at Charles University, Prague; her email address is: zuzana.irsova@ies-prague.org. We thank Jan Babecky, Oxana Babecka-Kucharcukova, Anne-Celia Disdier, Jarko Fidrmuc, Keith Head, Jiri Schwarz, Tom Stanley, Borek Vasicek, Diana Zigraiova, and two anonymous referees for their helpful comments. Havranek acknowledges the support from the Czech Science Foundation (Grant #15-02411S); Irsova acknowledges the support from the Czech Science Foundation (Grant #16-00027S). The views expressed here are ours and not necessarily those of the Czech National Bank.
An online appendix with data and code is available at http://meta-analysis.cz/border.
