Competitiveness and interregional as well as international trade: The case of Catalonia

Recent years have seen a surge of interest among industrial organization economists in using data on international trade flows as windows into competitiveness. For countries that are at least mid-sized (e.g., Spain), interregional trade tends to be as large as or significantly larger than international trade. The case of Catalonia, a Spanish region, illustrates how ignoring interregional flows can lead to erroneous inferences about a region's external competitiveness. Accounting for Catalonia's interregional as well as international flows shifts what is generally assessed to be a chronic trade deficit in goods into a surplus and changes diagnoses of which Catalan sectors generate external surpluses and who its key trading partners are. We also use a gravity model approach to estimate international border effects for Catalonia.