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Trade in Northeast Asia: Why do Trade Costs Matter?

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  • Prabir De
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    Abstract

    Trade costs are often cited as an important determinant of the volume of trade. This paper provides enough evidences to ascertain that today’s trade issues in Northeast Asia go beyond the traditional mechanisms of tariffs, and include “behind-the-border” issues. By estimating a modified gravity equation, controlling for endogeneity and remoteness, we find that variations in transaction costs along with trade infrastructure facilities have significant influence on regional trade flows in Northeast Asia. On average, 10 percent saving in transaction costs increases imports by about 5 percent in Northeast Asia. This paper concludes that when tariffs tend to become low in Northeast Asia, the economies in this region could potentially benefit substantially from higher trade provided trade costs are well controlled.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-09/cesifo1_wp1809.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1809.

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    Date of creation: 2006
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    Handle: RePEc:ces:ceswps:_1809

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    Keywords: trade costs; transaction costs; infrastructure; regional trade; tariff;

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    1. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, American Economic Association, vol. 69(1), pages 106-16, March.
    2. Bougheas, Spiros & Demetriades, Panicos O. & Morgenroth, Edgar L. W., 1999. "Infrastructure, transport costs and trade," Journal of International Economics, Elsevier, Elsevier, vol. 47(1), pages 169-189, February.
    3. Simeon Djankov & Caroline Freund & Cong S. Pham, 2010. "Trading on Time," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 166-173, February.
    4. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series, The World Bank 2257, The World Bank.
    5. Yann Duval, 2006. "Cost and Benefits of Implementing Trade Facilitation Measures under Negotiations at the WTO: an Exploratory Survey," Working Papers, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada. 306, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    6. Lucian Cernat, 2001. "ASSESSING REGIONAL TRADE ARRANGEMENTS: ARE SOUTH–SOUTH RTAs MORE TRADE DIVERTING?," International Trade, EconWPA 0109001, EconWPA.
    7. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-53, February.
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    Cited by:
    1. Khan, Imran Ullah & Kalirajan, Kaliappa, 2011. "The impact of trade costs on exports: An empirical modeling," Economic Modelling, Elsevier, Elsevier, vol. 28(3), pages 1341-1347, May.

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