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Comment: Inferring Trade Costs from Trade Booms and Trade Busts

Listed author(s):
  • Guillaume Corlay

    (ENSAE, French National School of Statistics and Economic Administration)

  • Stéphane Dupraz

    (Columbia University, 10025 New York NY, USA)

  • Claire Labonne

    (Paris School of Economics / Université Paris 1 Panthéon Sorbonne – ACPR - Banque de France)

  • Anne Muller

    (Sciences Po, Observatoire Français des Conjonctures Économiques (OFCE))

  • Guillaume Daudin

    ()

    (PSL, Université Paris-Dauphine, LEDa-DIAL UMR IRD 225)

Jacks et al. (2011) offer an alternative to price gaps to quantify trade costs. Implementing a method which consists in deducing international trade costs from trade flows, they argue that the reduction in trade costs was the main driving force of trade growth during the first globalization (1870-1913), whereas economic expansion was the main driving force during the second globalization (1950-2000). We argue that this important result is driven by the use of an ad hoc aggregation method. What Jacks et al. (2011) capture is the difference in the relative starting trade of dyads experiencing faster trade growth in the first and second globalization. More generally, we cast doubts on the possibility to reach conclusions of such nature with a method that infers trade costs from trade flows, and then uses these costs to explain trade flows. We argue that it can only rephrase the information already contained in openness ratios.

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File URL: http://www.dial.ird.fr/media/ird-sites-d-unites-de-recherche/dial/documents/publications/doc_travail/2016/2016-07
File Function: First version, 2016
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Paper provided by DIAL (Développement, Institutions et Mondialisation) in its series Working Papers with number DT/2016/07.

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Length: 12 pages
Date of creation: Aug 2016
Handle: RePEc:dia:wpaper:dt201607
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  1. Dennis Novy, 2013. "Gravity Redux: Measuring International Trade Costs With Panel Data," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 101-121, 01.
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