The Agglomeration by Destination of U.S. State Exports
Schmeiser, Katherine N.
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Precise characterization of informational trade barriers is neither well documented nor understood. Using Russian customs data, we document that regional destination-specific export spillovers exist for developing countries, extending a result that was only known for developed countries. This result suggests behavior responding to a destination barrier. To account for this fact, we build on a monopolistic competition model of trade by postulating an externality in the international transaction of goods. We test the model's prediction on region-level exports using Russian data and find improvement over gravity-type models without agglomeration. This finding has important development implications in that export policy that considers current trade partners may be more effective than policy that focuses only on the exporting country's industries. Furthermore, our findings can be considered in the burgeoning literature refining transaction costs beyond the traditional iceberg cost.