NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Fernando Borraz

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Working Papers

June 2012Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints.
with Alberto Cavallo, Roberto Rigobon, Leandro Zipitría: w18122
The “border effect” literature finds that political borders have a very large impact on relative prices, implicitly adding several thousands of miles to trade. In this paper we show that the standard empirical specification suffers from selection bias, and propose a new methodology based on quantile regressions. Using a novel data set from Uruguay, we apply our procedure to measure the segmentation introduced by city borders. City borders should matter little for trade. We find that when the standard methodology is used, two supermarkets separated by 10 kilometers across two different cities have the same price dispersion as two supermarkets separated by 30 kilometers within the same city; so the city border triples the distance. When our methodology is used, the city border effect becomes...

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