The Agglomeration of Exporters by Destination Andrew J. Casseya aSchool of Economic Sciences, Washington State University, 101 Hulbert Hall, P.O. Box 646210, Pullman, WA 99164, USA. Phone: 509-335-8334. Fax: 509-335-1173. Email:
[email protected]. Katherine N. Schmeiserb;∗ bDepartment of Economics, Mt. Holyoke College, 117 Skinner Hall; 50 College St, South Hadley, MA 01075, USA. Phone: 612-910-2538. Email:
[email protected]. Abstract Precise characterization of informational trade barriers is neither well documented nor understood, and thus remain a considerable hindrance to development. Using spatial econometrics on Russian customs data, we document that destination-specific export spillovers exist for developing countries, extending a result that was only known for developed countries. This result suggests behavior responding to a destination barrier. To account for this fact, we build on a monopolistic competition model of trade by postulating an externality in the international transaction of goods. We test the model's prediction on region- and state-level exports using Russian and U.S. data. Our model accounts for up to 40% more of the variation than in gravity-type models without agglomeration. This finding has important development implications in that export policy that considers current trade partners may be more effective than policy that focuses only on the exporting country's industries. Keywords: agglomeration, distribution, exports, development, location, Russia JEL: D23, F12, L29 ∗Corresponding author Preprint submitted to. September 21, 2011 1 1. Introduction 2 One of the unsolved problems in economic development is the lack of knowledge about the 3 size and nature of barriers to trade, and how these barriers affect growth and income.