By definition, context costs are understood as those costs that harm the competitiveness of companies and on the activities that these companies carry out about others that are also located close to the frontier.
Moreover, the organisations most affected by context costs are those closest to the border, with this affectivity decreasing as they move away from the border.
A cross-border region is understood as a contiguous sub-national unit consisting of two or more nation-states (Markus Permann and Ngai-Ling Sum, 2002). Through cross-border cooperation, which is a consequence of new institutional and economic attitudes towards the logical development of the integration process, context costs can be mitigated to a large extent. The increase in border activities results in:
- Promotion of the joint use of economic facilities and services.
- Enhancing the effectiveness of existing business cooperation networks.
- Promotion of the economic and social development of the regions involved in the border.
- Enhancing the focus on trade and local investment.
- Promotion of joint ventures, tourism and investment in local infrastructure.
- Cooperation in areas such as energy, transport and communication.
Context costs are part of what is known as Border Economies. This branch of economics integrates two or more economies that are different from each other in terms of legal aspects, different prices, commercial exchanges, etcetera. An important aspect to highlight is the importance of establishing what is known as meeting spaces where, through cross-border cooperation and, once the context costs have been mitigated, even fully integrated countries can be found.
To achieve integration and economic empowerment, the mitigation of background costs has to occur mainly in areas such as transport and communications, health, civil protection, social services and employment and, of course, public administration and business development.
Although the definition of context costs is expressed in a general scope, they can be ascribed to a specific sector, e.g. public context costs, by which we can understand those obstacles of an administrative nature to the activity of enterprises and the quality of life of citizens in the cross-border context; or private context costs, which affect private companies and which refer to the comparison with non-border areas, reflected as those extra costs that a company incurs simply because it is established in a cross-border territory, or because it carries out cross-border commercial relations, compared with another business entity that carries out its activity in non-border areas.
Taking into account all the variables mentioned above, we can define context costs from an economic point of view as the additional monetary value of the consumption of factors inherent to the development of an economic activity aimed at the production of a good or service, due to the actual location of consumption or production.