The trade creating effects of business and social networks: evidence from France

Using both standard and theory-grounded estimations of trade flow equations, the paper quantifies the role that business and social networks play in shaping trade between French regions. The bilateral intensity of networks is investigated using the financial structure and location of French firms and bilateral stocks of migrants. Compared to a situation without networks, migrants are shown to double bilateral trade flows. Moreover, the effect of migrants at the origin of the trade flow is generally stronger than at its destination. Firm networks have even larger effects, multiplying trade flows by as much as five in some specifications. Besides providing the magnitude of network effects, our results also support more the information-based impact of networks than the effects of imported preferences. Finally, we show that the role of usual proxies for trade impediments could be largely over-estimated when neglecting network effects. Taking them into account reduces the estimated impact of transport costs by as much as 60 % and divide the border effect by more than three. JEL classification: F12, F1