Trade costs and international trade flows: methodologies, data, and empirical evidence

This chapter provides a review of recent empirical work on the determinants of trade-related transportation costs and the subsequent impact on goods trade flows. Earlier studies have examined how improved international transportation systems (i.e. port-to-port costs) as well as upgraded port infrastructure can increase exports. More recent studies have focused increasingly on broad measures of “trade facilitation†using newly developed databases on internal transportation frictions. These new analyses, typically using gravity equation techniques, concentrate on policy-induced problems at the border as well as behind-the-border determinants such as logistics, domestic infrastructure, governance, and service sector restrictions. These issues have become more important as traditional trade barriers like tariffs have decreased. The review also documents the relative paucity of studies that examine firm level transportation frictions, which is likely to become a more important area of future research.