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

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