Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322422 
Authors: 
Year of Publication: 
2025
Series/Report no.: 
UCD Centre for Economic Research Working Paper Series No. WP25/05
Publisher: 
University College Dublin, UCD School of Economics, Dublin
Abstract: 
The home bias is a well-documented phenomenon highlighting how administrative borders hinder economic transactions. This paper estimates the magnitude of China's provincial border effect using inter-provincial and intra-provincial trade data, with a particular focus on the role of trust in shaping these effects. To address potential endogeneity, I employ a novel instrumental variable leveraging provincial exaggerations highlighted by media during the Great Leap Forward. The analysis uncovers a significant provincial home bias, with provincial borders substantially reducing inter-provincial exports. Importantly, both the exporter-to-importer trust and the importer-to-exporter trust emerge as crucial mechanisms driving this effect.
Subjects: 
Home bias
Trust
Instrumental variable
Exaggeration
Great Leap Forward
JEL: 
F14
F15
F40
Document Type: 
Working Paper

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