Monday, September 9, 2013

Travel time and the border effect

The border effect describes a striking feature of the data on trade volumes. Volumes typically decrease with distance traveled, with a jump down when a border has to be crossed. The size of this effect is mostly estimated with distance data taken from straight lines between trading areas, and often by simply taking the center of those regions. With considerable work, one can do better.

Henrik Braconier and Mauro Pisu determine the distance along roads as well as travel time for within-Europe trade, and this for almost 50,000 city pairs. While this neglects cargo train traffic, which has a substantial share of international traffic in Europe, this is as precise as it can get, I suppose. The interesting bit is that once a border is involved, travel distance and time are about 10% longer for town pairs that are equidistant when measured as a straight line. That means that literature has over-estimated the border effect by about as much. One could, however, also argue that the border effect is precisely stemming from the fact that it leads to travel time losses, at least in part, and that there is therefore no over-estimation. It depends what you really mean by border effect.

No comments: