Despite the trade integration process countries still trade more within their borders than beyond them. This paper provides new evidence on the home bias effect based on actual data on bilateral trade between the Basque Country and the rest of Spain. The results show that, once bilateral trade is controlled for other factors, the Basque country trades between 20 and 26 times more with the rest of Spain than with any other country. The results also show that between 70 and 85 per cent of the home bias effect can be explained by the fact that the Basque Country and the rest of Spain are contiguous, share the same language and belong to the same trade area.

Keywords: international trade, gravity equation, home-bias, Spain, Basque Country.
JEL classification: F14, F15.