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Trade in Northeast Asia: Why do Trade Costs Matter?

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  • Prabir De

Abstract

Trade costs are often cited as an important determinant of the volume of trade. This paper provides enough evidences to ascertain that today’s trade issues in Northeast Asia go beyond the traditional mechanisms of tariffs, and include “behind-the-border” issues. By estimating a modified gravity equation, controlling for endogeneity and remoteness, we find that variations in transaction costs along with trade infrastructure facilities have significant influence on regional trade flows in Northeast Asia. On average, 10 percent saving in transaction costs increases imports by about 5 percent in Northeast Asia. This paper concludes that when tariffs tend to become low in Northeast Asia, the economies in this region could potentially benefit substantially from higher trade provided trade costs are well controlled.

Suggested Citation

  • Prabir De, 2006. "Trade in Northeast Asia: Why do Trade Costs Matter?," CESifo Working Paper Series 1809, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1809
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1809.pdf
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    References listed on IDEAS

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    1. Simeon Djankov & Caroline Freund & Cong S. Pham, 2010. "Trading on Time," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 166-173, February.
    2. Bergstrand, Jeffrey H, 1989. "The Generalized Gravity Equation, Monopolistic Competition, and the Factor-Proportions Theory in International Trade," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 143-153, February.
    3. Bougheas, Spiros & Demetriades, Panicos O. & Morgenroth, Edgar L. W., 1999. "Infrastructure, transport costs and trade," Journal of International Economics, Elsevier, vol. 47(1), pages 169-189, February.
    4. Yann Duval, 2006. "Cost and Benefits of Implementing Trade Facilitation Measures under Negotiations at the WTO: an Exploratory Survey," Working Papers 306, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    5. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
    6. Lucian Cernat, 2001. "ASSESSING REGIONAL TRADE ARRANGEMENTS: ARE SOUTH–SOUTH RTAs MORE TRADE DIVERTING?," International Trade 0109001, EconWPA.
    7. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    Cited by:

    1. Khan, Imran Ullah & Kalirajan, Kaliappa, 2011. "The impact of trade costs on exports: An empirical modeling," Economic Modelling, Elsevier, vol. 28(3), pages 1341-1347, May.

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    Keywords

    trade costs; transaction costs; infrastructure; regional trade; tariff;

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