Trade Costs and International Trade Flows: Methodologies, Data, and Empirical Evidence

Abstract

A growing literature has begun to focus on the empirical relationship between transportation costs and international trade flows. This survey will document some of the most important recent trends in this literature, including a burgeoning focus on frictions at the border (such as customs procedures and port quality) as well as those behind-the-border (e.g. domestic infrastructure and regulatory quality). These empirical analyses have become possible because of the development of a number of new data sets, especially from World Bank initiatives. This new focus is particularly welcome for two reasons. Firstly, falling formal trade barriers from past negotiations means that transportation costs have more relative importance for trade. Secondly, stalled multilateral trade negotiations means that some of the most important sources of trade integration benefits may come from “trade facilitation,” especially in developing countries.