The trade-creating effects of business and social networks: evidence from France

Using theory-grounded estimations of trade flow equations, this paper investigates the role that business and social networks play in shaping trade between French regions. The bilateral intensity of networks is quantified using the financial structure and location of French firms and bilateral stocks of migrants. Compared to a situation without networks, migrants are shown to double bilateral trade flows, while networks of firms multiply trade flows by as much as four in some specifications. Finally, taking network effects into account divides the estimation of the impact of transport costs and of the effect of administrative borders by around three. (c) 2004 Elsevier B.V. All rights reserved.