Nov 28, 2013

Borders, ethnicity and trade

That is from the paper by Jenny C. Aker, Michael W. Klein, Stephen A. O'Connell, & Muzhe Yang. (Journal of Development Economics, March 2014)
Abstract: This paper uses unique high-frequency data on prices of two agricultural goods to examine the additional costs incurred in cross-border trade between Niger and Nigeria, as well as trade between ethnically distinct markets within Niger. We find a sharp and significant conditional price change of about 20 to 25% between markets immediately across the national border. This price change is significantly lower when markets on either side of the border share a common ethnicity. Within Niger, trade between ethnically distinct regions exhibits an ethnic border effect that is comparable, in its magnitude, to the national border effect between Niger and Nigeria. Our results suggest that having a common ethnicity may reduce the transaction costs associated with agricultural trade, especially the costs associated with communicating and providing credit.
The authors explain:
Despite the absence of natural or political barriers to trade between the two countries, there are several potential barriers to trade in agro-pastoral goods at the international border. One possible source of trade friction arises from currency exchange costs between the Communauté Financière Africaine (CFA) franc of Niger and the Nigerian Naira. Furthermore, there are often costs due to delays at the border (waiting for customs papers) or bribes paid to police officers and customs’ officials.9 Finally, linguistic differences (between the official languages of Niger and Nigeria, French and English, respectively) could also add to transaction costs if trade is conducted in these languages.
That is from this draft (2012, p. 9).  

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