Market fragmentation and the rise of sub-national regulation

Abstract

The evaluation of the Single European Market requires a better knowledge of the level of integration both between and within the EU countries. While some institutions are pushing for greater integration between EU countries, others may be introducing—purposely or collaterally—additional barriers to interaction. Several reports have reported the high levels of market fragmentation prevailing within Spain. This paper aims to determine whether regional borders influenced the patterns of intra- and interregional trade between the 18 regions of Spain (Nuts 2) over a long period of time (1995–2017). While trade is more intense within regions than between them, our results suggest the presence of spatial and temporal heterogeneity in the estimated home bias. We also investigate empirically the effect that the quantity and quality of national, regional and local regulations have on the economic performance of firms, in both the industrial and the service sectors. We use different non-spatial and spatial-gravity models, which yield robust results