Understanding Interstate Trade Patterns

This paper models and estimates bilateral trade patterns of U.S. states in a CES framework and identi?es the elasticity of substitution across goods, elasticity of substitution across varieties of each good, and the good-speci?c elasticity of distance measures by using markup values obtained from the production side. Compared to empirical 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 signi?cant, there is evidence for decreasing effects over time.