Recent research has determined the existence of a border effect on trade flows within acountry associated to agglomeration economies, the size of the spatial unit of reference, aswell as to alternative measures of transport costs. Using a micro-database on road freightshipments within Spain for the period 2003-2007, we consistently decompose the total valueof municipal freight flows into the extensive and intensive margins at the European Nuts-5(municipal), 3 (provincial) and 2 (regional) levels and study the impeding effect of actualgeneralized transport costs (as opposed to proxies given by the standard measures of distanceand travel time). Establishing the superiority of this generalized measure of transportcosts, we confirm the accumulation of trade flows up to a transport cost value of 330 euros,and conclude that this high density is not explained by the existence of administrative limits(border effects) but to significant changes in the trade flows-transport costs relationship.While this high density of trade coincides with low level administrative borders (municipaland provincial) as there is a positive and significant effect associated to them on all tradedecomposition, it is not significant, or even negative, at a larger regional level. To supportthis hypothesis, we identify significant thresholds in the trade flows-transport costs relationshipthat are calculated by way of the Chow test of structural change. These breakpointsallow us to split the sample and control for successive administrative borders in both theextensive and intensive margins. Relying on these thresholds we define relevant market areascorresponding to specific transport costs values that portrait a consistent urban hierarchysystem of the largest Spanish cities within a radius of about 330 euros, thereby providingclear evidence of the predictions made by the central place theory.
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