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Need for Speed: Is Faster Trade in the EU Trade-creating?

  • Cecília Hornok

    ()

    (Central European University)

Timely deliveries have become more important in international trade in the recent decades, mostly because of the spread of international production fragmentation. This paper provides empirical evidence on the cost of time in trade by looking at how faster trade within the European Union (EU) contributed to the trade expansion with new EU members after the enlargement in 2004. I derive a bilateral trade cost index from trade data of EU countries in 19 manufacturing industries and years 2000–2006 and perform a double difference-in-differences estimation. The results show that the enlargement-induced decline in the trade cost index, and hence trade creation, was more than twice larger in industries, where production fragmentation is typically widespread. I proxy the improvement in timeliness by the decline in the waiting time at land border crossings and estimate that saving one hour at the border is like a 0.9% trade cost decline in ad valorem terms. Robustness checks, which account for the dominant transport mode or experiment with alternative measures of timeliness, confirm the main findings.

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File URL: http://english.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_mnbfuzetek/WP_2012-04.pdf
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Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2012/4.

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Length: 40 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:mnb:wpaper:2012/4
Contact details of provider: Web page: http://www.mnb.hu/
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  1. Chen, Natalie & Novy, Dennis, 2008. "International Trade Integration: A Disaggregated Approach," CEPR Discussion Papers 7103, C.E.P.R. Discussion Papers.
  2. David S. Jacks & Christopher M. Meissner & Dennis Novy, 2008. "Trade Costs, 1870-2000," American Economic Review, American Economic Association, vol. 98(2), pages 529-34, May.
  3. David S. Jacks & Christopher M. Meissner & Dennis Novy, 2009. "Trade Booms, Trade Busts, and Trade Costs," CESifo Working Paper Series 2767, CESifo Group Munich.
  4. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  5. Novy, Dennis, 2008. "Gravity Redux : Measuring International Trade Costs with Panel Data," The Warwick Economics Research Paper Series (TWERPS) 861, University of Warwick, Department of Economics.
  6. Carolyn Evans & James Harrigan, 2003. "Distance, time, and specialization," International Finance Discussion Papers 766, Board of Governors of the Federal Reserve System (U.S.).
  7. Harrigan, James & Venables, Anthony J., 2006. "Timeliness and agglomeration," Journal of Urban Economics, Elsevier, vol. 59(2), pages 300-316, March.
  8. Emanuele Breda & Rita Cappariello & Roberta Zizza, 2007. "Vertical Specialisation in Europe: Evidence from the Import Content of Exports," Rivista di Politica Economica, SIPI Spa, vol. 97(3), pages 189, May-June.
  9. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
  10. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  11. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  12. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
  13. Cecília Hornok, 2010. "Trade-Enhancing EU Enlargement and the Resurgence of East-East Trade," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 79-94.
  14. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc.
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