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Toward a Geography of Trade Costs

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  • Hummels, David

Abstract

What are the barriers that separate nations? While recent work provides intriguing clues, we have remarkably little concrete evidence as to the nature, size, and shape of barriers. This paper offers direct and indirect evidence on trade barriers, moving us toward a comprehensive geography of trade costs. There are three main contributions. One, we provide detailed data on freight rates for a number of importers. Rates vary substantially over exporters, and aggregate expenditures on freight are at the low end of the observed range. This suggests import choices are made so as to minimize transportation costs. Two, we estimate the technological relationship between freight rates and distance and use this to interpret the trade barriers equivalents of common trade barrier proxies taken from the literature. The calculation reveals implausibly large barriers. Three, we use a multi-sector model of trade to isolate channels through which trade barriers affect trade volumes. The model motivates an estimation technique that delivers direct estimates of substitution elasticities. This allows a complete characterization of the trade costs implied by trade flows and a partition of those costs into three components: explicitly measured costs (tariffs and freight), costs associated with common proxy variables, and costs that are implied but unmeasured. Acknowledgments: Thanks for the gracious provision of data go to Jon Haveman, Rob Feenstra, Azita Amjadi and the ALADI secretariat. Thanks for helpful suggestions on previous drafts go to seminar participants at the Universities of Chicago, Michigan, and Texas, Boston University, NBER and the 4th Annual EIIT Conference at Purdue University. Finally, Julia Grebelsky and Dawn Conner provided outstanding research assistance. This research was funded by a grant from the University of Chicago’s Graduate School of Business.

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Bibliographic Info

Paper provided by Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University in its series GTAP Working Papers with number 1162.

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Date of creation: 1999
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Handle: RePEc:gta:workpp:1162

Note: GTAP Working Paper No. 17
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Cited by:
  1. Amador, João & Cabral, Sónia & Ramos Maria, José, 2007. "International Trade Patterns over the Last Four Decades: How does Portugal Compare with other Cohesion Countries?," MPRA Paper 5996, University Library of Munich, Germany.
  2. Baldwin, Richard, 2010. "Unilateral tariff liberalisation," CEPR Discussion Papers 8162, C.E.P.R. Discussion Papers.
  3. Maarten Bosker & Harry Garretsen, 2008. "Economic Geography and Economic Development in Sub-Saharan Africa," CESifo Working Paper Series 2490, CESifo Group Munich.
  4. Haq, Zahoor & Meilke, Karl D. & Cranfield, John A.L., 2010. "Does the Gravity Model Suffer from Selection Bias?," Working Papers 90884, Canadian Agricultural Trade Policy Research Network.
  5. Sang-Wook Stanley Cho & Julian P. Diaz, 2007. "Trade Liberalization in Latin America and Eastern Europe: The Cases of Ecuador and Slovenia," Discussion Papers 2007-25, School of Economics, The University of New South Wales.
  6. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  7. Moshe Syrquin, 2004. "Globalization: tooMuch or is too Little?," CRANEC - Working Papers del Centro di Ricerche in Analisi economica e sviluppo economico internazionale crn0402, Università Cattolica del Sacro Cuore, Centro di Ricerche in Analisi economica e sviluppo economico internazionale (CRANEC).
  8. Blyde, Juan, 2010. "Paving the road to export: the trade impacts of domestic transport costs and road quality," MPRA Paper 24625, University Library of Munich, Germany.
  9. Russell Hillberry & David Hummels, 2002. "Explaining Home Bias in Consumption: The Role of Intermediate Input Trade," NBER Working Papers 9020, National Bureau of Economic Research, Inc.
  10. Daniel X. Nguyen, 2010. "Demand Uncertainty: Exporting Delays and Exporting Failures," Discussion Papers 10-17, University of Copenhagen. Department of Economics.
  11. Anne-Célia Disdier & Silvio Tai & Lionel Fontagné & Thierry Mayer, 2010. "Bilateral trade of cultural goods," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(4), pages 575-595, January.

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