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.
Highlights
The existence of large border effects is one of the main puzzles of international macroeconomics (Obstfeld and Rogoff 2000)
We find in the literature estimates of the home bias within countries [internal border effect]
This section reports and discusses the results from the gravity model for Spain derived from the benchmark classic model (PPML)
Summary
The existence of large border effects is one of the main puzzles of international macroeconomics (Obstfeld and Rogoff 2000). We find in the literature estimates of the home bias within countries [internal border effect]. This is defined as how much more trade a region (province) of a given country conducts with itself, compared to that with any other region (province) of the same country. Other authors have conducted similar analyses for a range of other countries and specifications (Wrona 2018; Yilmazkuday 2012; Heinemeyer et al 2008; Shultze and Wolf 2009; Millimet and Osang 2007; Daumal and Zignago 2008; Combes et al 2005; Hillberry and Hummels 2003; Helliwell and Verdier 2001; Djankov and Freund 2002)
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