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The Habsburgs and future European integration | vox – Research-based policy analysis and commentary from Europe’s leading economists: “The world is not flat. Distance is not dead. In short, borders matter. A large body of empirical work – stretching back to the John McCallum 1995 article ‘National Borders Matter: Canada-US Regional Trade Patterns’ – shows that international borders reduce trade flows to an astounding degree. Recent studies have estimated this so-called ‘border effect’ to have a negative impact on trade that is equivalent to a tariff of 50% or more.
Why does the border effect matter for economic policy? First, nations – even European nations – are breaking up. Czechoslovakia split, Yugoslavia split and there is talk of breaking up several other European nations. Second, it is important to know how to calibrate the meaning of free trade. To gauge the importance of remaining barriers, one needs to know what trade flows would be if all the visible trade barriers were removed. Third, if the goal of European integration is a truly integrated market, then it is important to study the lack of integration among EU members. Social and business networks, especially those related to language patterns rank highly among the factors that may account for the border effect.”