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The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs

  • Alfonso Irarrazabal
  • Andreas Moxnes
  • Luca David Opromolla

Casual empiricism suggests that additive trade costs, such as quotas, per-unit tariffs, and, in part, transportation costs, are prevalent. In spite of this, we have no broad and systematic evidence of the magnitude of these costs. We develop a new empirical framework for estimating additive trade costs from standard firm-level trade data. Our results suggest that additive barriers are on average 14 percent, expressed relative to the median price. The point estimates are strongly correlated with common proxies for trade costs. Using our micro estimates, we show that a reduction in additive trade costs produces much higher welfare gains and growth in trade flows than a similar reduction in multiplicative trade costs.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19236.

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Date of creation: Jul 2013
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Handle: RePEc:nbr:nberwo:19236
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