Explaining national border effects in the QUAD food trade

Using a ‘structural’ gravity-like model, this paper first provides estimates of bilateral ‘border effects’ in food trade among the QUAD countries (the US, Canada, Japan and the EU) at the ISIC (International Standard Industrial Classification) four-digit level (18 food sectors). It then investigates the underlying reasons for border effect, assessing the role played by policy barriers (tariffs, non-tariff barriers to trade (NTBs) and domestic support) with respect to barriers unrelated to trade policy, such as information-related costs, cultural proximity and preferences. In contrast to several previous findings, our results show that policy trade barriers, especially in the form of NTBs, are part of the story in explaining national border effects. Interestingly, in all country pair combinations, NTBs significantly dominate the trade reduction effect induced by tariffs. However, results show that elements linked to information-related costs and consumer preferences matter a great deal in explaining the magnitude of border effects. These findings have implications for the economic and welfare-related significance of national borders.