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Traders, Courts and the Home Bias Puzzle
2002
Social Science Research Network
Recent evidence shows that the "home bias puzzle" in international trade may be associated with the mere presence of national borders (McCallum (1996)). In this paper we provide a theoretical framework to explain why borders may matter so much for trade. Our argument is that even between perfectly integrated and similar countries the legal system di¤ers, so that legal costs are higher when business is done abroad. Using a matchig model of trade, we show that the home bias is associated with
doi:10.2139/ssrn.297219
fatcat:pt5n3pzvvjcybnlc3geovlc66e