Compensation modes of border effects in cross-border regions

Both international and regional economics discuss borders as barriers to economic growth. They hamper trade flows between areas sharing an international border (a demand effect), as well as causing firms' inefficiency because of the increase in production costs (supply side). In the theoretical and empirical discussions, no question has been raised on whether regional economies are able to set up compensation mechanisms, by replacing low endowments with high efficiency in the use of existing assets, or by compensating an inefficient use of internal assets with an efficient use of external ones. The reply to this question has normative implications. Empirical evidence on the universe of 1,398 European NUTS3 regions is presented and policy suggestions elaborated.