Domestic and international border effects: The cases of China and Japan

- We estimate domestic and international border effects in China and Japan.
- We found larger international border effects.
- China's accession to the WTO reduces international border effects.
- But it does not decrease domestic border effects.

Previous studies in the border-effect literature surprisingly found that domestic border effects are larger than international border effects (e.g., in the United States or Brazil). One interpretation of this result is that these estimates include the effects of producer agglomeration. Therefore, in this study, we estimate those border effects exclusively for transactions for final consumption, in which such agglomeration forces will be weak, in China and Japan. As a result, we found larger international border effects and could not find a significant role for producer agglomeration in the estimates of border effects. We also found that China's accession to the World Trade Organization reduces border effects in trading between China and Japan but does not decrease domestic border effects.