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Assessing the impact of communication costs on international trade

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Author Info
Fink, Carsten
Mattoo, Aaditya
Neagu, Ileana Cristina

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Abstract

Recent research suggests that trade costs influence the pattern of specialization and trade, but there is limited empirical research on the determinants of trade costs. The existing literature identifies a range of barriers that separate nations, but then typically focuses only on transport costs. Although communication costs figure prominently in intuitive explanations and casual observations, they have played little role in the formal analysis of trade costs. The authors seek to examine whether this neglect matters, and whether the inclusion of the magnitude and variation of communication costs across partner countries can add value to existing explanations of the pattern of trade. The authors develop a simple multi-sector model of"impeded"trade that generates hypotheses in a gravity-type estimation framework. The main proxies for bilateral communication costs are the per-minute country-to-country calling prices charged in the importing and exporting countries. The use of bilateral variations in prices yields estimates that are superior to the ones obtained from country-specific measures of communication infrastructure used in previous studies. The authors find that international variations in communication costs have a significant influence on bilateral trade flows, at the aggregate level and for most individual sectors disaggregated according to the 2-digit SITC classification. Since information and communication needs are likely to be much greater for differentiated goods, the authors test whether trade in these products is more sensitive to variations in the costs of communication. Using the Rauch classification of product heterogeneity, the estimates suggest that the impact of communication costs on trade in differentiated products is as much as one-third larger than on trade in homogenous products. Finally, the authors verify, to the extent possible, that the significance of communication costs is not driven by their endogeneity or by omitted variables.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2929.

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Date of creation: 30 Nov 2002
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Handle: RePEc:wbk:wbrwps:2929

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Common Carriers Industry; Payment Systems&Infrastructure; ICT Policy and Strategies; Economic Theory&Research; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Environmental Economics&Policies; Common Carriers Industry; ICT Policy and Strategies;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  4. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 7-46, 04. [Downloadable!] (restricted)
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  8. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 327-377. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Márquez Ramos, Laura & Martínez Zarzoso, Inmaculada & Sanjuan Lucas, Elena & Suárez Burguet, Celestino, 2007. "Efecto De Las TIC Sobre El Comercio Y El Desarrollo Económico. Análisis Para El Caso De España/Effect of ICT on Trade and Economic Development. An Application to the Spanish Case," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 25, pages 313-340, Abril. [Downloadable!] (restricted)
  2. Javorcik, Beata S. & Narciso, Gaia, 2007. "Differentiated products and evasion of import tariffs," Policy Research Working Paper Series 4123, The World Bank. [Downloadable!]
    Other versions:
  3. Márquez-Ramos, Laura & Martínez-Zarzoso, Inmaculada, 2009. "The effect of technological innovation on international trade : a nonlinear approach," Economics Discussion Papers 2009-24, Kiel Institute for the World Economy. [Downloadable!]
  4. Selim Raihan, 2008. "Trade liberalization and poverty in Bangladesh," Publication STUDIES IN TRADE AND INVESTMENT, in: Mia Mikic (ed.), Emerging Trade Issues for Policymakers in Developing Countries in Asia and the Pacific, chapter 8 Trade Policy Section, Trade and Investment Division, UNESCAP. [Downloadable!]
  5. Johan Fourie, 2007. "A Note on Infrastructure Quality in South Africa," Working Papers 03/2007, Stellenbosch University, Department of Economics. [Downloadable!]
  6. Carsten Fink & Beata Smarzynska Javorcik & Mariana Spatareanu, 2005. "Income-Related Biases in International Trade: What Do Trademark Registration Data Tell Us?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(1), pages 79-103, April. [Downloadable!] (restricted)
    Other versions:
  7. Mayer, Jorg, 2003. "Export Dynamism and Market Access," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  8. Martin Gassebner & Alexander Keck & Robert Teh, 2006. "Shaken, not stirred: the impact of disasters on international trade," KOF Working papers 06-139, KOF Swiss Economic Institute, ETH Zurich. [Downloadable!]
  9. Arnold, Jens Matthias & Mattoo, Aaditya & Narciso, Gaia, 2006. "Services inputs and firm productivity in Sub-Saharan Africa : evidence from firm-level data," Policy Research Working Paper Series 4048, The World Bank. [Downloadable!]
    Other versions:
  10. Fernandes, Ana M. & Paunov, Caroline, 2008. "Foreign direct investment in services and manufacturing productivity growth: evidence for Chile," Policy Research Working Paper Series 4730, The World Bank. [Downloadable!]
  11. Hoekman, Bernard & Mattoo, Aaditya, 2008. "Services trade and growth," Policy Research Working Paper Series 4461, The World Bank. [Downloadable!]
  12. Wheatley, W. Parker & Roe, Terry L., 2005. "The Effects of the Internet on U.S. Bilateral Trade in Agricultural and Horticultural Commodities," 2005 Annual meeting, July 24-27, Providence, RI 19227, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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