The impact of border walls on international trade flow

Border walls have been proliferated in the world for the last three decades since the end of cold war. An increasing number of countries are constructing walls in their boundaries to control illicit flows. Nearly one third of countries have constructed some kind of walls in their borders. This trend is surprising in this era of globalization and Free Trade Agreements in which many scholars envisioned a global village where goods and people will move freely. It was expected that the era of globalization could eliminate all types of barriers and make borders symbolic. Furthermore, it was believed that border walls were irrelevant and things of the past. Currently we are living in the world which perhaps borders are being fortified than any time in the past. Although, policies of building walls are under discussion. There is little attention given to their uintended effect. Considering the fact that foreign trade crosses borders, this paper investigates the impacts of these walls on bilateral trade flow between neighboring countries. It focuses on the effect of physical border wall on foreign trade. It seeks to answer the question ‘Are international trade flow affected by walls?’ Gravity model is applied to estimate the impact of walls between contiguous countries. The gravity model have estimated the impact using panel data estimation covering 118 trading countries around the world from 1990 to 2010. Fixed effect model thave been used in the analysis with different specifications including variables capturing political relationship between trading countries. The empirical results shows that physical border walls have negative significant impact on trade between neighboring countries. Countries separated by wall trade by 51 percent less than those not separated by wall. These findings suggest that erecting walls reduce trade, even though the goal is to reduce illegal flows. The findings have implication for knowing how government policy decisions of fortifying borders lead to unintended negative consequences on bilateral trade in this era of globalization.