Understanding interstate trade patterns

This paper models and estimates bilateral trade patterns of U.S. states in a CES framework and identifies the elasticity of substitution across goods, the elasticities of substitution across varieties of each good, and the good-specific elasticities of distance by using markup values obtained from the production side. Compared to the international trade literature, the elasticity of substitution estimates are lower across both goods and varieties, while the elasticity of distance estimates are higher. Although home-bias effects at the state level are significant, there is evidence for decreasing effects over time. (C) 2011 Elsevier B.V. All rights reserved.