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Trade costs, barriers to entry, and export diversification in developing countries

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  • Dennis, Allen
  • Shepherd, Ben

Abstract

This paper finds that a 1 percent reduction in the cost of exporting or the cost of international transport is associated with an export diversification gain of 0.3 percent or 0.4 percent respectively. Lower domestic market entry costs can also promote diversification, but the elasticity is weaker (-0.1). To obtain these results, the authors construct new measures of export diversification for 118 developing countries using highly detailed 8-digit mirror data from the European Union. The analysis also incorporates new export cost data from the World Bank's Doing Business database, covering document preparation, inland transport, administrative fees, and port/customs charges. Findings are highly robust, including to the use of geography and colonial history as instruments for trade and entry costs. Both the signs and relative magnitudes of these effects are consistent with predictions from a heterogeneous firms model of trade with asymmetric costs.

Suggested Citation

  • Dennis, Allen & Shepherd, Ben, 2007. "Trade costs, barriers to entry, and export diversification in developing countries," Policy Research Working Paper Series 4368, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4368
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yann Duval & Chorthip Utoktham, 2011. "Trade Facilitation in Asia and the Pacific: Which Policies and Measures affect Trade Costs the Most?," Working Paper Series 111, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    2. Brooks, Douglas H. & Stone, Susan F., 2010. "Accelerating Regional Integration: Issues at the Border," ADBI Working Papers 200, Asian Development Bank Institute.
    3. Robert C. Feenstra & Hong Ma, 2014. "Trade Facilitation and the Extensive Margin of Exports," The Japanese Economic Review, Japanese Economic Association, vol. 65(2), pages 158-177, June.
    4. Konstantins Benkovskis & Ramune Rimgailaite, 2011. "The quality and variety of exports from the new EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(4), pages 723-747, October.
    5. Florentina Viorica GHEORGHE & Artur-Emilian SIMION & Gheorghe ZAMAN, 2017. "Some aspects of the export performance and efficiency in the Romanian economy," Romanian Journal of Economics, Institute of National Economy, vol. 45(2(54)), pages 87-109, December.
    6. Santos Silva, J.M.C. & Tenreyro, Silvana & Wei, Kehai, 2014. "Estimating the extensive margin of trade," Journal of International Economics, Elsevier, vol. 93(1), pages 67-75.
    7. repec:esx:essedp:721 is not listed on IDEAS
    8. Maria Persson, 2013. "Trade facilitation and the extensive margin," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(5), pages 658-693, August.
    9. Mauricio Vaz Lobo Bittencourt & Paula Andrea Mosquera Agudelo, 2021. "The impacts of the exchange rate volatility on colombian trade with its main trade partners," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 18(2), pages 57-81, Julio-Dic.
    10. Yue Li & John S. Wilson, 2009. "Trade Facilitation and Expanding the Benefits of Trade: Evidence from Firm Leval Data," Working Papers 7109, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    11. Konstantīns Beņkovskis, 2012. "Competitiveness of Latvia's exporters," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 17-45, December.
    12. Salamat Ali & Richard Kneller & Chris Milner, 2017. "Market-specific trade costs and firm dynamics in Pakistan: Evaluating the US integrated cargo containers control programme," Discussion Papers 2017-02, University of Nottingham, GEP.
    13. Salamat Ali, 2016. "Export Response to Sanitary and Phytosanitary Measures and Technical Barriers to Trade: Firm-level Evidence from a Developing Country," Discussion Papers 2016-02, University of Nottingham, CREDIT.
    14. Shepherd, Ben & Wilson, John S., 2009. "Trade facilitation in ASEAN member countries: Measuring progress and assessing priorities," Journal of Asian Economics, Elsevier, vol. 20(4), pages 367-383, September.
    15. Persson, Maria, 2008. "Trade Facilitation and the Extensive and Intensive Margins of Trade," Working Papers 2008:13, Lund University, Department of Economics.
    16. Yann Duval & Chorthip Utoktham, 2011. "Trade costs in the India-Mekong Subregion: Identifying Policy Priorities for Trade Facilitation," Working Paper Series 411, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    17. Vaseem Akram, 2018. "Does export diversification converge? Evidence from cross-country analysis," Economics Bulletin, AccessEcon, vol. 38(4), pages 2141-2151.

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