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Transportation Cost and Trade Competitiveness : Empirical Evidence from India

  • Prabir De

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  • Bhisma Rout
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    India has been witnessing a sharp rise in merchandise trade and showing greater trade interdependence on a large variety of goods, particularly in intermediate and capital goods. However, higher transportation costs continue to impede Indias trade. Costlier transportation prohibits trade in India and taxes the trade in the way tariff does. This paper provides sufficient evidence to ascertain that variations in ad-valorem transportation costs strongly influence trade flows in India. Another conclusion of this paper is that transportation cost is relatively more important than tariff in enhancing Indias merchandise trade. Reduction in transportation costs should therefore get utmost priority while formulating policy for Indias infrastructure development and trade facilitation since the fall in transportation costs, as an outcome of improved infrastructure, will stimulate trade. The challenge for India is thus to identify improvements in trade facilitation, logistics services and related infrastructure that can be achieved in the short-to-medium term and that would have a significant impact on trade competitiveness of India.

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    File URL: http://www.eaber.org/node/22099
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    Paper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 22099.

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    Date of creation: Jan 2008
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    Handle: RePEc:eab:tradew:22099
    Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
    Web page: http://www.eaber.org

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    1. David L. Hummels & Georg Schaur, 2013. "Time as a Trade Barrier," American Economic Review, American Economic Association, vol. 103(7), pages 2935-59, December.
    2. 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.
    3. De, Prabir, 2006. "Trade, Infrastructure and Transaction Costs: The Imperatives for Asian Economic Cooperation," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 21, pages 708-735.
    4. Limao, Nuno & Venables, Anthony J., 1999. "Infrastructure, geographical disadvantage, and transport costs," Policy Research Working Paper Series 2257, The World Bank.
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