We develop and apply a procedure to flexibly estimate intra-national border barriers and intra-regional trade costs. Bilateral border barriers very significantly depress Canadian inter-provincial trade for some pairs, though the overall effect is rather small. Bilateral distance imposes much larger inter-provincial trade costs. Contiguity between provinces accounts for little. Intra-regional trade cost variation affects relative bilateral costs and trade flows, and alters comparative statics except in a neutral case rejected by the data. Consistent trade cost aggregation procedures are developed and applied for groups of regions and/or sectors.
Keith Head, Mario Larch, Thierry Mayer, Peter Neary and Dennis Novy improved this paper with comments on earlier drafts. We also thank participants of seminars at LSE, Oxford, Sciences Po and Warwick. This research is supported by the Public Policy Forum, Industry Canada, and the Internal Trade Secretariat, Canada. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Agnosteva, Delina E., James E. Anderson, and Yoto V. Yotov, " Intra-National Trade Costs: Assaying Regional Frictions, " European Economic Review, 2019, 112 (February), 32-50.