Patterns of Intra- and Inter-State Trade

Recent studies suggest that intranational trade is "excessive' compared to international trade. An intuitive explanation for this home bias is provided by national trade barriers. A dataset of trade between US states, however, reveals that home bias extends to subnational units. The data suggest three additional stylized facts. First, shipment distances are shorter for intermediate than for final goods. Second, states located close to each other tend to have similar production patterns. Third, trade flows are higher among states with similar production patterns. The stylized facts are consistent with a complementary explanation of home bias resulting from a spatial clustering of production driven by natural and created comparative advantage.