Iceberg Trade Cost Measures: An Application to the OECD Area over 1988–2010

Abstract

This study suggests an augmented trade cost function, with correction for nonstationarity, and applies it to estimate bilateral iceberg trade costs of OECD countries during 1988–2010. We show that trade costs have not been reduced during recent decades, but also exhibit an upward trend in geographical, institutional, and cultural components. Our findings also indicate that bilateral and multilateral trade resistances are asymmetrically distributed across the OECD area, particularly for intra-continent trade and for trade between countries at different levels of economic development. A convergence process is, however, detected between developed and developing countries.