Disentangling the impact of infrastructure on trade using a new index of infrastructure

Abstract

Making use of considerably improved measures of infrastructure, the study assesses the impact of infrastructure on bilateral trade for a panel of 150 developed and emerging economies during the period 1992–2011. The authors make use of a gravity approach to disentangle the impact of infrastructure on trade and trade costs. Improving infrastructure endowments and quality decreases trade costs and increases international trade flows. Countries with improved infrastructure reduce not only bilateral trade costs but also multilateral trade costs. The decomposition of effects indicates that better infrastructure encourages higher export flows relative to domestic trade flows. Main results of the study prove to be robust, also when considering distinct trade categories (consumption goods, intermediates, and capital goods) for a smaller sample.