Intra-National versus International Trade: How Stubborn are Nations in Global Integration?

Abstract

This paper examines the home country bias in the goods market among OECD countries. An average country imports about two and a half times as much from itself as from an otherwise identical foreign country, after controlling for sizes of exporter and importer, their direct distance, geographic positions relative to the rest of the world and a possible linguistic tie. If one believes that the substitutability among goods produced in OECD countries is high, as it seems reasonable, the observed bias implies relatively small non- tariff barriers. Over 1982-94, the home bias of OECD countries as a whole exhibited a slow but steady decline. The bias in a typical member country of the European Community relative to its imports from other member countries showed a fifty percent decline during the period.