The border effect and the non-linear relationship between trade and distance

Abstract

After the seminal paper by McCallum, various authors have estimated the effect of regional and national borders on trade. This paper digs deeper into the matter, estimating how the internal and external border effect is affected by the non-linear relation between trade and distance at different spatial levels, and the econometric procedure used to control for it. Our paper uses a novel dataset that captures intra- and inter-national truck shipments between Spanish regions and regions in eight European countries. To deal with this non-linearity, we use three alternative strategies— segmented distance, piecewise regressions and semi-parametric approaches—that achieve similar results.