Trade Frictions and Market Access of Developing Countries : A Product-Level Empirical Investigation

This paper examines the effects of trade frictions, including tariffs and a variety of factors that raise trade costs, on export market access at the product level and, in particular, the role these frictions have on the ability of developing countries to access world markets. We find that a variety of trade frictions do serve to limit market access. We find distance and efficiency in trade facilitation are significant determinants of the probability of success in entering foreign markets. We examine whether there are any systematic development-related biases from these frictions that further limit market access for exporters from developing countries. Our results suggest that developing countries are not differentially impacted by these factors. In the spirit of an earlier study by Markusen and Wigle (1990), we also conduct a series of counterfactual exercises to see the impact of significant reductions in trade frictions on developing country market access. In contrast to their results, our findings show that reductions in tariffs do not greatly improve the number of new markets for developing countries. Our results suggest a traditional recommendation to resolve the market access problem for developing countries: expansion and diversification of the industrial base and productivity improvements in the handling of exports. Both are vital preconditions to increasing the number of export markets.