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A Passage to India : Quantifying Internal and External Barriers to Trade

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  • Eva Van Leemput

Abstract

This paper quantifies the size of internal versus external trade barriers and assesses the impact on trade and welfare. I develop a quantitative multi-sector international trade model featuring nonhomothetic preferences in which states trade both domestically and internationally. I discipline the model using rich micro data on price dispersion as well as foreign and domestic trade flows at the Indian state level. I find that (1) state-based price data predict internal trade flows well; (2) internal trade barriers make up 40% of the total trade cost on average, but vary substantially by state depending on the distance to the closest port; and (3) the welfare impacts of domestic integration are substantial: reducing trade barriers across states to the U.S. level increases welfare by more (13%) than fully eliminating international import barriers (7%).

Suggested Citation

  • Eva Van Leemput, 2016. "A Passage to India : Quantifying Internal and External Barriers to Trade," International Finance Discussion Papers 1185, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:1185
    DOI: 10.17016/IFDP.2016.1185
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    File URL: https://www.federalreserve.gov/econresdata/ifdp/2016/files/ifdp1185.pdf
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    References listed on IDEAS

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    1. Crucini, Mario J. & Shintani, Mototsugu, 2008. "Persistence in law of one price deviations: Evidence from micro-data," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 629-644, April.
    2. Restuccia, Diego & Yang, Dennis Tao & Zhu, Xiaodong, 2008. "Agriculture and aggregate productivity: A quantitative cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 55(2), pages 234-250, March.
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    Cited by:

    1. Asturias, Jose & García-Santana, Manuel & Ramos Magdaleno, Roberto, 2016. "Competition and the welfare gains from transportation infrastructure: Evidence from the Golden Quadrilateral of India," CEPR Discussion Papers 11283, C.E.P.R. Discussion Papers.
    2. Yilmazkuday, Hakan, 2017. "Domestic vs. International Welfare Gains from Trade," Globalization and Monetary Policy Institute Working Paper 298, Federal Reserve Bank of Dallas.
    3. Gunning, Jan Willem & Krishnan, Pramila & Mengistu, Andualem Telaye, 2018. "Fading Choice: Transport Costs and Variety in Consumer Goods," CEPR Discussion Papers 12910, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Internal Trade Barriers ; External Trade Barriers ; Welfare ; India;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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