Border effects. Border Effects Border Effects : the extent to which internal trade exceeds international trade after controlling for the economic determinants of commerce. Internal trade measure: difference between domestic production and exports
3.Introduce fixed-effects: two dummies one for the origin country and another one for the destination country:
Di=1 if i is the exporter, 0 otherwise;
Dj=1 if j is the importer, 0 otherwise;
The two dummies are both equal to 1 only for cross-border trade observations.
This implies: Di=(1-s)lnPi and Dj=(1-s)lnPj