Reassessing international trade costs: the role of conventional and unconventional barriers

International trade has grown considerably over the last few decades. This increase can be attributed to several factors, among them a decline in international trade costs such as the decline in transportation costs and tariffs. A gap in the literature has been observed in understanding and measuring the concept of real trade costs and their impact on international trade. This paper tries to assess and estimate the impact of trade costs on international trade for main trade sectors like agriculture, manufacturing, machinery and transportation equipment, as well as chemicals. This is achieved by employing a gravity equation model and using a panel data of trade flows (2004–2014) across the 34 OECD member countries. Results demonstrate that–beyond the “classical” variables that affect trade costs–maritime transport connectivity, number of days and number of documents required for the export process are important determinants of bilateral trade costs.

Capital goods play a major role in international trade. World production of capital goods and R&D activity are highly concentrated in some developed countries. Most of the countries, especially developing countries import the most of their capital equipment from some leading capital goods exporter countries. Therefore technological advances can be transmitted across borders through trade in capital goods. In international trade countries face trade costs. Trade costs can be in the form of transportation costs, quota, tariffs etc. The focus of this study is on trade barriers on the capital goods implied by the pattern of bilateral trade. I recover trade costs from bilateral trade equation using the United Nations' International Comparison Program (ICP)'s price and bilateral trade data without imposing any restriction on the form of trade costs.

What has driven trade booms and trade busts in the past century and a half? Was it changes in global output or in the costs of international trade? To address this question, we derive a micro-founded measure of aggregate bilateral trade costs based on a standard model of trade in differentiated goods. These trade costs gauge the difference between observed bilateral trade and frictionless trade in terms of an implied markup on retail prices of foreign goods. Thus, we are able to estimate the combined magnitude of tariffs, transportation costs, and all other macroeconomic frictions that impede interna tional trade but that are inherently difficult to observe. We use this measure to examine the growth of global trade between 1870 and 1913, its retreat from 1921 to 1939, and its subsequent rise from 1950 to 2000. We find that trade cost declines explain roughly 55 percent of the pre– World War I trade boom and 33 percent of the post–World War II trade boom, while a precipi tous rise in trade costs explains the entire inter

Access to ports and the welfare gains from domestic transportation infrastructure

International trade costs are of vital importance because they determine trade patterns and therefore economic performance. This paper develops a new micro-founded measure of international trade costs. It is based on a multicountry general equilibrium model of trade that incorporates bilateral “iceberg” trade costs. The model results in a gravity equation from which the implied trade costs can be easily computed. The trade cost measure is intuitive, takes multilateral resistance into account and yields empirical results that are economically sensible. It is found that during the post-World War II period trade costs have declined markedly. The dispersion of trade costs across countries can best be explained by geographical and historical factors like distance

International trade costs are of vital importance because they determine trade patterns and therefore economic performance. This paper develops a new micro-founded measure of international trade costs. It is based on a multi-country general equilibrium model of trade that incorporates bilateral ice-berg trade costs. The model results in a gravity equation from which the implied trade costs can be easily computed. The trade cost measure is intuitive, takes multilateral resistance into account and yields empirical results that are economically sensible. It is found that during the post-WorldWar II period trade costs have declined markedly. The dispersion of trade costs across countries can best be explained by geographical and historical factors like distance and colonial linkages but also by tariffs and free trade agreements

The benefits of increased pipeline access for Alberta’s economy are well known. The benefits of infrastructure corridors, however, go far beyond pipelines. By reducing interprovincial and international trade costs, multi-modal infrastructure corridors of road, rail, utilities and communications can potentially create large economic benefits. In this paper, we quantify the potential economic gains in Alberta from reductions in trade costs and identify the importance of improved access to lower cost transportation options like rail for select commodities. Combining rich data on interprovincial trade flows with mode-specific shipment data on volumes, values, and shipment costs, we find that rail shipments are a lower cost means of exporting goods for long-distance trade. We estimate increased rail penetration lowers trade costs by roughly 0.3 per cent for each percentage point of rail’s share of shipments. We also estimate economic gains from lower trade costs. We find that lowering trade costs substantially increases Alberta’s real GDP through its effect on international and interprovincial trade flows. Infrastructure capacity is particularly valuable, as we find that increasing the share of exports shipped by rail by ten percentage points may increase Alberta’s GDP by nearly 1.5 per cent in the short-run and over 2.5 per cent in the long-run — equivalent to over $9 billion per year in economic activity.

This paper documents patterns in international trade costs in processed foods for a large cross-section of developing and developed countries, during the 1976-2000 period. A trade costs index is inferred from a micro-founded gravity equation that incorporates bilateral 'iceberg' trade costs. For 2000, the weighted average tariff equivalent of trade costs ranges from 73% for the North to 134% for the South countries. The time patterns show an average reduction of about -13% in the observed period, that rises to -26% for the Emerging countries. However, the same does not apply for South countries. On ranking the trade costs determinants we find that, on average, geographical and historical factors seem to dominate those of infrastructure and institutions. However, trade policy emerges as an important determinant of the North-Emerging trade costs. Finally we find strong evidence that demand-side considerations also matter to explain trade costs.

The costs of international trade have become an increasingly important item in trade negotiations (under the heading ‘trade facilitation’) and element of trade theory, but definition and measurement of trade costs remain in their infancy. This paper argues that the most conceptually appropriate measure is the gap between cost‐insurance‐freight (cif) and free‐on‐board (fob) values of traded goods, but that this must be measured on a consistent volume of trade. Such data are only available for a few countries. We calculate cif–fob gap values for the three largest trading nations that report such data (Australia, Brazil and the USA). These values provide plausible estimates of ad valorem trade costs for the three importing countries and for all countries’ exports. The estimates indicate that although trade costs have fallen over the last two decades, average trade costs now exceed the average tariff rate on imports into the USA and Australia. Country rankings by the cif–fob gap values differ significantly from those by commonly used proxies for trade costs, such as the indicators of time and cost in the World Bank’s Doing Business database, and analysis based on such proxies is likely to produce misleading results.

Agglomeration in World Cities

This paper derives new comparative statics within a two-country version of the recent offshoring model by Antras, Fort, and Tintelnot (2014) with nonprohibitive costs of exporting final goods. One key finding is that an asymmetric trade liberalisation might very well imply that the fractions of offshorers and exporters increase in one country and decrease in the other country. This model outcome occurs when competition enhances in a country experiencing a decline in its costs of international trade. The fractions of offshorers and exporters certainly increase in a small open economy experiencing a decline in its costs of international trade. These strong industry-level results appear even though the comparative statics at the firm level are nonmonotone and asymmetric across the heterogeneous firms.

This paper documents patterns in international trade costs in processed foods for a large cross‐section of developing and developed countries, during the 1976–2000 period. A trade costs index is inferred from a micro‐founded gravity equation that incorporates bilateral ‘iceberg’ trade costs. For 2000, the trade costs, expressed as weighted average tariff equivalent, range from 73% for the north to 134% for the south countries. The time patterns show an average reduction of about 13% in the observed period that rises to 26% for the emerging countries. However, the same does not occur for south countries. On ranking the trade costs determinants, we find that, on average, geographical and historical factors seem to dominate those of infrastructure and institutions. However, trade policy emerges as an important determinant of the trade costs between north and emerging countries.

This book features the results of the 2015 UNRC Joint Survey on Trade Facilitation and Paperless Trade Implementation for the Asia-Pacific Region and incorporates them into an econometric analysis estimating the impact of trade facilitation on trade costs. It shows that there is a strong, negative relationship between Asia-Pacific countries’ international trade costs and their level of trade facilitation implementation. Reducing trade costs is essential for developing economies to participate in international production networks and effectively use trade as an engine of growth and sustainable development. One effective way to reduce trade costs is to tackle non-tariff barriers and address regulatory procedures and documentation requirements. Trade facilitation, including paperless trade, has taken increasing importance as evidenced by the WTO Trade Facilitation Agreement reached in December 2013, as well as the growing number of regional and subregional initiatives aimed at facilitating the electronic exchange of trade related information and documents along international supply chains.

Despite the essential role of trade for African economies, in the extensive literature on the historical evolution of international trade costs, Africa is still missing. In this article, we contribute to filling this gap by (1) providing the first estimates of British West Africa's trade costs with Britain c. 1840–1940 by computing relative price gaps in a representative sample of African export and European import prices, and (2) analysing the main determinants of trade costs trends, by regressing price gaps on measures of transport costs, market efficiency, and trade barriers. The results uncover a diverging pattern in African and global trade costs trends, which was not noticed in the previous literature. British West Africa experienced a reduction in its trade costs with Britain c. 1840–70, similar to the one we observe in other world areas, thanks to improvements in shipping technology and market efficiency. From the late 1870s, however, as colonial monopsonistic trading companies consolidated their control of African export markets, trade costs continued to decline in the rest of the world, but not in British West Africa. Consequently, from the late nineteenth century, trade for West Africa became relatively more expensive than for other world regions.

This article analyzes the effects of external finance on firms’ decision to choose a firm type with different sales combinations, in the presence of both domestic and international trade costs. It utilizes a World Bank survey of firms operating in China in the early 2000s with a multinomial logit method to inform the study. Based on firms’ sales destinations, we categorize firms in four exclusive types as Provincial Firms, Domestic Firms, Pure Exporters, and All Sellers to highlight domestic trade barriers across provincial borders and international trade barriers. We find that access to financial loans significantly raises firms’ odds to overcome domestic and international trade barriers by choosing a firm type with sales beyond their home provincial borders and/or overseas. The effects vary across firm ownership types of being SOEs, foreign affiliates and private firms, highlighting their inherent differences. The results indicate loans’ perceived importance, reflecting the inefficient loan allocations in China. Further, the results here help uncover the pervasiveness of China’s domestic trade barriers: access to external finance significantly increases the odds for firms to sell outside their home provinces even if they did not feel local protection and more for those if they did.