Abstract
Trade costs are important determinants of international trade and economic development. In these relationships customs efficiency plays a critical role. Studies commonly highlight the role of customs efficiency as a significant driver behind the reduction of trade costs. Our study differs from those previously in the sense that our main aim was to explore how and to what extent customs efficiency mediates trade costs and gross domestic product. By utilising hierarchical regression as well as the Baron and Kenny mediation methods, we analysed the dataset of 80 countries for the years 2007, 2010, 2012, 2014 and 2016. The result of the mediation analysis and the Sobel test shows that the customs efficiency index fully mediates trade costs and gross domestic product (GDP). In reducing trade costs to reach a higher level of GDP, the role of customs efficiency is significant.
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