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On the measurement of trade costs: direct vs. indirect approaches to quantifying standards and technical regulations

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  • Natalie Chen
  • Dennis Novy

Abstract

In this article, we review the literature on the measurement of trade costs in international trade with a special emphasis on nontariff measures and in particular on standards and technical regulations. We distinguish ‘direct’ from ‘indirect’ approaches. The direct approach collects observable data or proxy variables on trade cost components which are then typically used as regressors in a gravity equation of trade. Instead, the indirect approach infers the extent of trade impediments from trade flows. It compares actual trade flows to the trade flows predicted by a hypothetical frictionless benchmark scenario based on a micro-founded trade model, attributing the deviation of actual from predicted trade flows to trade frictions. We argue that economists and policymakers can gain useful insights from both approaches.

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File URL: http://eprints.lse.ac.uk/51509/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 51509.

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Length: 18 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:ehl:lserod:51509

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Cited by:
  1. Arman Mazhikeyev & T.Huw Edwards, 2013. "Central Asian Trade Relations in the Post-Soviet Era," Discussion Paper Series 2013_02, Department of Economics, Loughborough University, revised Jun 2013.
  2. Arman Mazhikeyev & T.Huw Edwards & Marian Rizov, 2014. "Openness and Isolation: the comparative trade performance of the Former Soviet Central Asian countries," Discussion Paper Series 2014_02, Department of Economics, Loughborough University, revised Feb 2014.
  3. Stefano Bolatto, . "Trade across Countries and Manufacturing Sectors with Heterogeneous Trade Elasticities," Development Working Papers 360, Centro Studi Luca d\'Agliano, University of Milano.
  4. Borchert, Ingo & Gootiiz, Batshur & Mattoo, Aaditya, 2012. "Policy barriers to international trade in services : evidence from a new database," Policy Research Working Paper Series 6109, The World Bank.

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