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Market Entry and Trade Weighted Import Costs

Author Info

  • Benjamin Bridgman

    (Bureau of Economic Analysis)

Abstract

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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  • F1 - International Economics - - Trade

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  1. David L. Hummels & Georg Schaur, 2009. "Hedging Price Volatility Using Fast Transport," NBER Working Papers 15154, National Bureau of Economic Research, Inc.
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  6. 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.
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  10. Willis, Jonathan L. & Ruhl, Kim J., 2014. "New exporter dynamics," Research Working Paper RWP 14-10, Federal Reserve Bank of Kansas City.
  11. 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.
  12. Benjamin Bridgman, . "Energy Prices and the Expansion of World Trade," Departmental Working Papers 2003-14, Department of Economics, Louisiana State University.
  13. David Hummels & Volodymyr Lugovskyy & Alexandre Skiba, 2007. "The Trade Reducing Effects of Market Power in International Shipping," NBER Working Papers 12914, National Bureau of Economic Research, Inc.
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  19. repec:spo:wpecon:info:hdl:2441/10221 is not listed on IDEAS
  20. Benjamin Bridgman, 2008. "Data files for "Energy Prices and the Expansion of World Trade"," Technical Appendices 06-199, Review of Economic Dynamics.
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Cited by:

  1. Lin, Chin-Ho, 2015. "The impact of tariff rates on the probability of trade relationships survival: evidence from ASEAN+6 manufactured goods," MPRA Paper 71260, University Library of Munich, Germany.
  2. Bridgman, Benjamin, 2012. "The rise of vertical specialization trade," Journal of International Economics, Elsevier, vol. 86(1), pages 133-140.

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