Intra-national Trade Costs in Low- and Middle-Income Countries

Casual observation suggests that intra-national trade costs remain high in low- and middle-income countries. Precisely estimating them is crucial for guiding policies aimed at optimizing economic efficiency within a country's borders. This paper estimates intra-national trade costs for six low- and middle-income countries in Africa and Eastern Europe: Kenya, Madagascar, Nigeria, Rwanda, Tanzania, and Georgia. The analysis exploits unit-level price data collected by countries’ national statistical offices for consumer price index calculation purposes. It applies the price differential methodology, which aims at estimating trade costs while accounting for the possibility of imperfect competition among intermediaries, controlling for spatial variation in markups. The findings show that the intra-national trade costs in the sample of countries are between 2.5 and 14 times larger than previous estimates for the United States using the same methodology.