Trade flows, migration flows and capital flows are significantly lower across international borders than within a country.
- This holds even if the countries are in a monetary union, single market or free trade area.
- This holds after adjustments are made for size of region/country, proximity, language and culture
- In 2010, 67% of Scottish exports were to the rest of the UK - see here.
National borders matter: Canada-US regional trade patterns, McCallum (1995). Intra-national versus International trade. How stubborn are nations in Global Integration, Wei (1996). National Borders and International Trade: Evidence from the European Union, Nitsch (2000). Intranational Home Bias in Trade, Wolf (2000). Gravity with Gravitas: A solution to the Border Puzzle, Anderson and van Wincoop (2003). The border effects in Spain, an industry-level analysis, Requena and Llano (2006). Is the International Border Effect Larger than the Domestic Border Effect? Evidence from U.S. Trade, Coughlin and Novy (2012). Is the EU internal market suffering from an integration deficit? Estimating the 'home-bias effect', Pacchioli (2011). Gravity Equations: Workhorse, Toolkit and Cookbook, Head and Mayer (2013