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Market Entry and Trade Weighted Import Costs

  • Benjamin Bridgman

    (Bureau of Economic Analysis)

Trade costs have fallen surprisingly little given the large increase in international trade in the last 50 years. This paper examines whether trade costs are properly measured. I show theoretically that trade weighted measures will underestimate the changes in trade costs when there are fixed market entry costs and quality differences. Newly traded goods enter at higher trade costs than previously traded ones. Lower import costs shift trade to low quality goods with higher measured trade costs. U.S. import costs fall twice as fast as trade weighted measures from 1974 to 2004 when the impacts of shifting and new goods are removed. Once the biases are removed, typical estimates of trade elasticities can explain increasing trade.

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Paper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0067.

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Date of creation: Apr 2010
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Handle: RePEc:bea:wpaper:0067
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  1. David Hummels & Alexandre Skiba, 2002. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," NBER Working Papers 9023, National Bureau of Economic Research, Inc.
  2. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
  3. Thierry Mayer & Philippe Martin & Nicolas Berman, 2010. "How do different exporters react to exchange rate changes? Theory, empirics and aggregate implications," 2010 Meeting Papers 1338, Society for Economic Dynamics.
  4. Novy, Dennis, 2006. "Is the Iceberg Melting Less Quickly? International Trade Costs after World War II," The Warwick Economics Research Paper Series (TWERPS) 764, University of Warwick, Department of Economics.
  5. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," Econometrica, Econometric Society, vol. 75(3), pages 837-873, 05.
  6. Benjamin Bridgman, . "Energy Prices and the Expansion of World Trade," Departmental Working Papers 2003-14, Department of Economics, Louisiana State University.
  7. Salvatici, Luca & Cipollina, Maria, 2006. "Measuring Protection: Mission Impossible?," Working Papers 18876, TRADEAG - Agricultural Trade Agreements.
  8. O'Rourke, Kevin H., 1997. "Measuring protection: a cautionary tale," Journal of Development Economics, Elsevier, vol. 53(1), pages 169-183, June.
  9. David L. Hummels & Georg Schaur, 2009. "Hedging Price Volatility Using Fast Transport," NBER Working Papers 15154, National Bureau of Economic Research, Inc.
  10. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
  11. Jonathan L. Willis & Kim J. Ruhl, 2009. "New Exporter Dynamics," 2009 Meeting Papers 111, Society for Economic Dynamics.
  12. George Alessandria & Joseph Kaboski & Virgiliu Midrigan, 2008. "Inventories, lumpy trade, and large devaluations," Working Paper Series 2008-24, Federal Reserve Bank of San Francisco.
  13. Timothy J. Kehoe & Kim J. Ruhl, 2009. "How important is the new goods margin in international trade?," Staff Report 324, Federal Reserve Bank of Minneapolis.
  14. Bruce A. Blonigen & Anson Soderbery, 2009. "Measuring the Benefits of Product Variety with an Accurate Variety Set," NBER Working Papers 14956, National Bureau of Economic Research, Inc.
  15. repec:spo:wpecon:info:hdl:2441/10221 is not listed on IDEAS
  16. Hummels, David & Lugovskyy, Volodymyr & Skiba, Alexandre, 2009. "The trade reducing effects of market power in international shipping," Journal of Development Economics, Elsevier, vol. 89(1), pages 84-97, May.
  17. Benjamin Bridgman, 2008. "Data files for "Energy Prices and the Expansion of World Trade"," Technical Appendices 06-199, Review of Economic Dynamics.
  18. Jacks, David S., 2006. "New results on the tariff growth paradox," European Review of Economic History, Cambridge University Press, vol. 10(02), pages 205-230, August.
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