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The determinants of trade costs: a random coefficient approach

Author

Listed:
  • Peter Egger

    (ETH Zurich
    Centre for Economic Policy Research (CEPR)
    CESifo Group
    University of Nottingham)

  • Jan Průša

    () (Charles University in Prague)

Abstract

Abstract This paper assesses whether the sensitivity of bilateral trade volumes to various trade cost factors is constant or varies across countries. It utilizes a random coefficient model and analyzes a cross-sectional sample of bilateral trade data for 96 countries in 2005. We expect the elasticity of trade to vary particularly with bilateral distance and bilateral tariffs due to measurement error about these factors. Indeed, the variability of coefficients is significant for these trade cost measures. The results indicate that the elasticity of trade with respect to tariffs in different countries varies relatively more than that with respect to distance. This is consistent with there being a host of sources of measurement error about bilateral tariffs (due to strategic or non-strategic mis-reporting; the potential inappropriateness of the weighting of disaggregated tariffs; etc.).

Suggested Citation

  • Peter Egger & Jan Průša, 2016. "The determinants of trade costs: a random coefficient approach," Empirical Economics, Springer, vol. 50(1), pages 51-58, February.
  • Handle: RePEc:spr:empeco:v:50:y:2016:i:1:d:10.1007_s00181-015-0954-7
    DOI: 10.1007/s00181-015-0954-7
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    References listed on IDEAS

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    Cited by:

    1. Susanne Fricke & Geoffrey Chapman, 2017. "The Role of Standards in North-South Trade: The Case of Agricultural Exports from Sub-Saharan African Countries to the EU," Jena Economic Research Papers 2017-011, Friedrich-Schiller-University Jena.
    2. van Bergeijk, P.A.G., 2017. "Measurement error of global production," ISS Working Papers - General Series 632, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.

    More about this item

    Keywords

    Bilateral trade flows; Gravity equation; Random coefficient model; Trade costs;

    JEL classification:

    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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