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The determinants of trade costs: a random coefficient approach

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  • Peter Egger
  • Jan Průša

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.). Copyright Springer-Verlag Berlin Heidelberg 2016

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:p:51-58
    DOI: 10.1007/s00181-015-0954-7
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    Cited by:

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    2. 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 Economics Research Papers 2017-011, Friedrich-Schiller-University Jena.
    3. Nguyen, Trung Thanh & Do, Manh Hung, 2021. "Impact of economic sanctions and counter-sanctions on the Russian Federation’s trade," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 267-278.
    4. Luisa Marti & Rosa Puertas, 2019. "Factors determining the trade costs of major European exporters," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 21(3), pages 324-333, September.
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    6. Peter A.G. van Bergeijk, 2017. "Making Data Measurement Errors Transparent: The Case of the IMF," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 18(3), pages 133-154, July.
    7. Elina Bryngemark & Patrik Söderholm, 2022. "Green industrial policies and domestic production of biofuels: an econometric analysis of OECD countries," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(2), pages 225-261, April.

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    More about this item

    Keywords

    Bilateral trade flows; Gravity equation; Random coefficient model; Trade costs; C29; F12; F17;
    All these keywords.

    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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