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


In this article, we review the literature on the measurement of trade costs in international trade with a special emphasis on non-tariff 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 policy-makers can gain useful insights from both approaches.

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Article provided by Cambridge University Press in its journal World Trade Review.

Volume (Year): 11 (2012)
Issue (Month): 03 (July)
Pages: 401-414

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Handle: RePEc:cup:wotrrv:v:11:y:2012:i:03:p:401-414_00
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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