Borders and interregional trade integration between Spain and the European Union: Theoretical foundations and empirical analysis in the context of the gravity model and the New Economic Geography

Resumen

The motivation of this Doctoral Thesis emerges from the desire to answer two questions that we think are of great interest given its implications for economic policy making: i) to quantify to what extent political boundaries still constitute a significant obstacle to trade of goods, analyzing the impact of the current crisis on them and its spatial disaggregation; and ii) to know how trade openness of a country, together with the trading network configuration of the countries involved, can generate a trade-off between the internal and the external regional integration of a country, which may lead to asymmetries in the distribution of its economic activity. Regarding the first question related to the quantification of the border effect, we focus on administrative boundaries that exist within a country (between its regions) and between countries (among regions of different countries). By means of the estimation of the border effect within a country (internal border effect) we get a first insight of what some authors have called the ¿home bias¿ effect (Hillbery and Hummels, 2008; Garmendia et al. 2012), where the higher intensity of trade within regions (sub-national political units that conform countries) is only explained by the preferences of consumers towards local goods. In so far as, inside of a country, one should not expect any type of tariff or non-tariff trade barriers but simple transportation costs, and the only factor that could explain the higher intensity of intra-regional trade versus inter-regional trade comes for the preferences of individuals. However it is not difficult to describe the presence of external barriers to trade even between regions within countries, such as information barriers, cultural and historical differences, etc. In addition, through the estimation of the border effect between countries (external border effect) we obtain a measure of their level of integration, which is especially interesting when the countries involved belong to the same customs (and reciprocal) tariff system, where a priori there may be no tariff barriers. To address the first question, we have developed an empirical study grounded on the border effect literature, where the methodological approach relies on the econometric estimation of various specifications of the gravity equation, using both cross-sectional and panel data. This empirical analysis takes as reference the Spanish economy and its relations with the European Union (EU, hereafter). More precisely, it considers the trade flows among the Spanish regions (Nuts 2, following Eurostat classification) and between them and those of the 7 main European trade partners of Spain. The time period available covers from 2004 to 2011, so that we can observe the effect of the crisis in the intensity of trade. As previously mentioned, the other question is related to the effect of trade openness in the internal economic landscape of a country. More specifically we want to model the impact of the trade liberalization process on the economic distribution within the countries involved, given the characteristics of the transport network configuration that connects each of the regions with the foreign market. When addressing this issue, we have developed a theoretical model that combines the literature of the New Trade Theory (NET) and New Economic Geography (NEG). With this theoretical model we have simulated the response of firms in their location decisions when the economy faces a trade liberalization process. To do this we have taken into account: i) the effects of the internal transport network of the country of interest, before trade openness takes place; ii) the effects of the new trading network, after liberalization; and iii) the effects of considering two sectors (one mobile and one fixed) that produce differentiated goods, and which in turn, both bear transport costs in their shipments.