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A two-step procedure for Generating Domestic and Asymmetric International Trade Costs when Data are Scarce

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  • Mazhikeyev, Arman

Abstract

The practice of trade cost measurement faces several challenges related to data quality, methodology and theory; but the major issue is that of data scarcity. Due to these facts both domestic and asymmetric trade costs have been ignored despite being a feature of modern trade models. This paper offers a two-step procedure to tackle these limitations and fill the gaps between theory and p ractice. The results of this work show that domestic trade costs proportionally grow with economic size, and that international trade costs are highly asymmetric especially when trading pair sizes differ. Counterfactual simulation results that ignore domestic frictions and adopt symmetric international trade cost measures show over-predicted welfare and trade changes as a response to policy shock in larger sized countries rather than smaller countries. After the proper treatment of trade costs in the simulation, results improve.

Suggested Citation

  • Mazhikeyev, Arman, 2019. "A two-step procedure for Generating Domestic and Asymmetric International Trade Costs when Data are Scarce," LEAF Working Paper Series 19-04, University of Lincoln, Lincoln International Business School, Lincoln Economics and Finance Research Group (LEAF).
  • Handle: RePEc:zbw:leafwp:1904
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    References listed on IDEAS

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    1. Chen, Natalie & Novy, Dennis, 2012. "On the measurement of trade costs: direct vs. indirect approaches to quantifying standards and technical regulations," World Trade Review, Cambridge University Press, vol. 11(3), pages 401-414, July.
    2. Bergstrand, Jeffrey H. & Egger, Peter & Larch, Mario, 2013. "Gravity Redux: Estimation of gravity-equation coefficients, elasticities of substitution, and general equilibrium comparative statics under asymmetric bilateral trade costs," Journal of International Economics, Elsevier, vol. 89(1), pages 110-121.
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    More about this item

    Keywords

    trade costs; measurement; domestic frictions; asymmetric costs; international trade; gravity; trade policy simulations;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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