The home bias in trade puzzle is a widely discussed problem in macroeconomics and international finance, first documented by John T. McCallum in an article from 1995. McCallum showed that for the United States and Canada, inter-province trade is 20 times larger than international trade, holding other determinants of trade fixed. Subsequent estimates by John F. Helliwell and others have whittled this bias down to a factor from 6 to 12. This home bias in trade has later been documented among

OECD The Organisation for Economic Co-operation and Development (OECD; , OCDE) is an international organization, intergovernmental organization with 38 member countries, founded in 1961 to stimulate economic progress and international trade, wor ...

countries. The preferred explanation for this finding has been the presence of formal and informal trade barriers following national borders. Another possible solution to the fact that domestic trade is 20 times larger than international trade could be that domestically traders speak the same language. If presence of formal and informal trade barriers following national borders was the sole reason for this puzzle, home bias should not exist on the subnational level. Wolf (2000) finds, however, that home bias is present also within U.S. states. Maurice Obstfeld and

Kenneth Rogoff Kenneth Saul Rogoff (born March 22, 1953) is an American economist and chess Grandmaster. He is the Maurits C. Boas Chair of International Economics at Harvard University. During the Great Recession, Rogoff was an influential proponent of auste ...

identify this as one of the six major puzzles in international economics. The others are the Feldstein-Horioka puzzle, the

equity home bias puzzle In finance and investing, the Home bias puzzle is the term given to describe the fact that individuals and institutions in most countries hold only modest amounts of foreign equity, and tend to strongly favor company stock from their home nation. T ...

, the

consumption correlations puzzle Consumption may refer to: * Eating *Resource consumption *Tuberculosis, an infectious disease, historically known as consumption * Consumer (food chain), receipt of energy by consuming other organisms * Consumption (economics), the purchasing of n ...

, the purchasing power and exchange rate disconnect puzzle, and the Baxter-Stockman neutrality of exchange rate regime puzzle.

References

{{reflist International finance International macroeconomics Economic puzzles