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Market Entry and Trade Weighted Import Costs

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  • Benjamin Bridgman

    (Bureau of Economic Analysis)

Abstract

Trade costs have fallen surprisingly little given the large increase in international trade in the last 50 years. This paper examines whether trade costs are properly measured. I show theoretically that trade weighted measures will underestimate the changes in trade costs when there are fixed market entry costs and quality differences. Newly traded goods enter at higher trade costs than previously traded ones. Lower import costs shift trade to low quality goods with higher measured trade costs. U.S. import costs fall twice as fast as trade weighted measures from 1974 to 2004 when the impacts of shifting and new goods are removed. Once the biases are removed, typical estimates of trade elasticities can explain increasing trade.

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Bibliographic Info

Paper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0067.

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Date of creation: Apr 2010
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Handle: RePEc:bea:wpaper:0067

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  1. Timothy J. Kehoe & Kim J. Ruhl, 2006. "How Important is the New Goods Margin in International Trade?," 2006 Meeting Papers 733, Society for Economic Dynamics.
  2. Hummels, David & Lugovskyy, Volodymyr & Skiba, Alexandre, 2009. "The trade reducing effects of market power in international shipping," Journal of Development Economics, Elsevier, vol. 89(1), pages 84-97, May.
  3. Maria Cipollina & Luca Salvatici, 2008. "Measuring Protection: Mission Impossible?," Journal of Economic Surveys, Wiley Blackwell, vol. 22(3), pages 577-616, 07.
  4. Nicolas Berman & Philippe Martin & Thierry Mayer, 2009. "How do Different Exporters React to Exchange Rate Changes? Theory, Empirics and Aggregate Implications," Working Papers 2009-32, CEPII research center.
  5. repec:spo:wpecon:info:hdl:2441/10221 is not listed on IDEAS
  6. Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
  7. George Alessandria & Joseph Kaboski & Virgiliu Midrigan, 2008. "Inventories, lumpy trade, and large devaluations," Working Paper Series WP-08-07, Federal Reserve Bank of Chicago.
  8. Benjamin Bridgman, . "Energy Prices and the Expansion of World Trade," Departmental Working Papers 2003-14, Department of Economics, Louisiana State University.
  9. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," NBER Working Papers 8629, National Bureau of Economic Research, Inc.
  10. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
  11. O'Rourke, Kevin H., 1997. "Measuring protection: a cautionary tale," Journal of Development Economics, Elsevier, vol. 53(1), pages 169-183, June.
  12. Benjamin Bridgman, 2008. "Data files for "Energy Prices and the Expansion of World Trade"," Technical Appendices 06-199, Review of Economic Dynamics.
  13. Novy, Dennis, 2006. "Is the Iceberg Melting Less Quickly? International Trade Costs after World War II," The Warwick Economics Research Paper Series (TWERPS) 764, University of Warwick, Department of Economics.
  14. Jacks, David S., 2006. "New results on the tariff growth paradox," European Review of Economic History, Cambridge University Press, vol. 10(02), pages 205-230, August.
  15. David L. Hummels & Georg Schaur, 2009. "Hedging Price Volatility Using Fast Transport," NBER Working Papers 15154, National Bureau of Economic Research, Inc.
  16. Jonathan L. Willis & Kim J. Ruhl, 2009. "New Exporter Dynamics," 2009 Meeting Papers 111, Society for Economic Dynamics.
  17. Bruce A. Blonigen & Anson Soderbery, 2009. "Measuring the Benefits of Product Variety with an Accurate Variety Set," NBER Working Papers 14956, National Bureau of Economic Research, Inc.
  18. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
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Cited by:
  1. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.

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