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Information Matters: Comparing Some Theoretical Determinants of Border Effects in Trade

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  • Chris M Wilson

    (School of Business and Economics, Loughborough University)

Abstract

There is widespread evidence that geographical borders reduce trade volumes. This paper presents a theoretical model capable of providing a succinct comparison of three broad explanations for this well-known 'border effect' or 'home bias', involving i) trade costs, ii) localized tastes, and iii) information frictions. Despite being traditionally under-researched as an explanation, it finds that information frictions often provide the relatively more powerful marginal effect in determining the border effect, and associated welfare.

Suggested Citation

  • Chris M Wilson, 2015. "Information Matters: Comparing Some Theoretical Determinants of Border Effects in Trade," Discussion Paper Series 2015_02, Department of Economics, Loughborough University, revised Feb 2015.
    • Handle: RePEc:lbo:lbowps:2015_02
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    File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Wilson_WP2015_02.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Tomas Havranek & Zuzana Irsova, 2017. "Do Borders Really Slash Trade? A Meta-Analysis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(2), pages 365-396, June.

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    More about this item

    Keywords

    Home Bias; Information Frictions; Search Costs; Localized Tastes; Trade Costs;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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