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Why Do Trade Costs Vary?

Author

Listed:
  • Richard Pomfret

    (School of Economics, University of Adelaide)

  • Patricia Sourdin

    (School of Economics, University of Adelaide)

Abstract

Trade theorists and policymakers have until recently ignored trade costs, but as tariffs have fallen it is apparent that trade costs are a significant obstacle to trade and they are not simply determined by geography or commodity characteristics. We analyse country-by-country variations in trade costs using disaggregated Australian import data. In Australia average trade costs are about 5% of the value of imports, compared to an average tariff of under 4%. Controlling for distance from Australia and the bulkiness of commodities, the paper examines other determinants of international trade costs in terms of exporting country characteristics. Country-specific characteristics which influence the size of trade costs may provide a direct link between institutions and economic growth.

Suggested Citation

  • Richard Pomfret & Patricia Sourdin, 2008. "Why Do Trade Costs Vary?," School of Economics and Public Policy Working Papers 2008-08, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2008-08
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2008-08.pdf
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    Cited by:

    1. Esteve-Pérez Silviano & Gil-Pareja Salvador & Llorca-Vivero Rafael & Paniagua Jordi, 2021. "Corruption and International Trade: A Re-assessment with Intra-National Flows," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 15(1), pages 187-198, January.
    2. Yulin Hou & Yun Wang & Wenjun Xue, 2021. "What explains trade costs? Institutional quality and other determinants," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 478-499, February.
    3. Richard Pomfret & Patricia Sourdin, 2010. "Trade Facilitation And The Measurement Of Trade Costs," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 145-163.
    4. Kurt A. Hafner & Jörn Kleinert & Julia Spies, 2023. "Endogenous transport costs and international trade," The World Economy, Wiley Blackwell, vol. 46(3), pages 560-597, March.
    5. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2014. "Importers, Exporters, and Exchange Rate Disconnect," American Economic Review, American Economic Association, vol. 104(7), pages 1942-1978, July.
    6. Pomfret, Richard & Sourdin, Patricia, 2009. "Have Asian trade agreements reduced trade costs?," Journal of Asian Economics, Elsevier, vol. 20(3), pages 255-268, May.
    7. Murat Genç & David Law, 2014. "A Gravity Model of Barriers to Trade in New Zealand," Treasury Working Paper Series 14/05, New Zealand Treasury.
    8. Gee Hee Hong & Nicholas Li, 2017. "Market Structure and Cost Pass-Through in Retail," The Review of Economics and Statistics, MIT Press, vol. 99(1), pages 151-166, March.
    9. Yuko Imura, 2013. "Endogenous Trade Participation with Incomplete Exchange Rate Pass-Through," Staff Working Papers 13-30, Bank of Canada.
    10. Chris Edmond & Virgiliu Midrigan & Daniel Yi Xu, 2015. "Competition, Markups, and the Gains from International Trade," American Economic Review, American Economic Association, vol. 105(10), pages 3183-3221, October.
    11. Salvador Gil-Pareja & Rafael Llorca-Vivero & José Antonio Martínez-Serrano, 2017. "Corruption and International Trade: A Comprehensive Analysis with Gravity," Working Papers 1705, Department of Applied Economics II, Universidad de Valencia.
    12. Joern Kleinert & Julia Spies, 2011. "Endogenous Transport Costs in International Trade," IAW Discussion Papers 74, Institut für Angewandte Wirtschaftsforschung (IAW).
    13. Aktoty Aitzhanova & Shigeo Katsu & Johannes F. Linn & Vladislav Yezhov (ed.), 2014. "Kazakhstan 2050: Toward a Modern Society for All," Books, Emerging Markets Forum, edition 1, number kazakh2050, September.
    14. Bianka Dettmer & Andreas Freytag & Peter Draper, 2014. "Air Cargo beyond Trade Barriers in Africa," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 29, pages 95-138.
    15. Logan Lewis, 2013. "Menu Costs, Trade Flows, and Exchange Rate Volatility," 2013 Meeting Papers 313, Society for Economic Dynamics.
    16. Lawless, Martina & Morgenroth, Edgar, 2017. "Ireland’s international trade and transport connections," Papers WP573, Economic and Social Research Institute (ESRI).
    17. Julia Spies & Joern Kleinert, 2011. "Transport Costs in International Trade," ERSA conference papers ersa11p625, European Regional Science Association.
    18. Han Zou, 2024. "Environmental regulation, corporate strategy and trade costs: a regression discontinuity in time design," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(5), pages 12163-12191, May.
    19. Gnangnon, Sèna Kimm, 2025. "Effect of Special and Differential Treatment Flexibilities in WTO Rules on Trade Reforms, Manufactured Exports and Export Upgrading in the Least Developed Countries," EconStor Preprints 313359, ZBW - Leibniz Information Centre for Economics.
    20. Bianka Dettmer & Andreas Freytag & Peter Draper, 2013. "Check-in, departure and arrival times: Air cargo in Southern Africa?," Jena Economics Research Papers 2013-018, Friedrich-Schiller-University Jena.
    21. Gita Gopinath & Oleg Itskhoki, 2011. "In Search of Real Rigidities," NBER Chapters, in: NBER Macroeconomics Annual 2010, volume 25, pages 261-309, National Bureau of Economic Research, Inc.
    22. Richard Pomfret & Richard Pomfret, 2014. "Expanding the Division of Labour: Trade Costs and Supply Chains in the Global Economy," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 54(3), pages 220-241, November.
    23. Rahul Anand & Ms. Kalpana Kochhar & Mr. Saurabh Mishra, 2015. "Make in India: Which Exports Can Drive the Next Wave of Growth?," IMF Working Papers 2015/119, International Monetary Fund.
    24. Lugovskyy, Oleksandr & Skiba, Alexandre, 2014. "Effect of distance on trade under slope heterogeneity and cross-correlated effects," Economics Discussion Papers 2014-30, Kiel Institute for the World Economy.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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