Intra-national trade costs: Assaying regional frictions

The effects of intra-regional, inter-regional and international frictions on the trade flows of Canada's provinces are disentangled by gravity model techniques. Unexplained Trade Barriers (UTBs) are the difference between inter-provincial trade barriers inferred from pair fixed effects and from bilateral distance and contiguity. The estimates reveal large intranational trade costs and UTBs that vary significantly across Canada's provinces. Decomposition of UTBs into relative border effects and a systematic residual UTB is based on a novel Cobb-Douglas aggregator of intra-provincial and pure inter-provincial trade costs. Variation of both components across provinces is big. (C) 2018 Elsevier B.V. All rights reserved.