IDEAS home Printed from https://ideas.repec.org/p/ekd/002672/4267.html
   My bibliography  Save this paper

Evolution of Trade Costs

Author

Listed:
  • Ozlem Yaylaci

Abstract

The aim of this paper is to provide a detailed investigation of trade barriers by examining a cross-country, cross-industry analysis of evolution of trade costs for a 44-year period (1963-2006) positing the possible reasons behind the changes. I estimate trade costs using methodology of Shikher (2010), which is a framework based on the EK model (Eaton and Kortum, 2002) at the industry level. Instead of using the Armington assumption (1969) to explain intra-industry trade, the model imposes the producer heterogeneity assumption. Therefore, the goods are di¤erentiated according to their features, rather than their country of origin. Moreover, in case of producer heterogeneity, countries do not have monopoly power, and home bias in consumption and price di¤erence across countries are explained by trade costs rather than demand-side parameters. Another advantage of the model is that it captures trade in intermediate goods, which is important since trade in intermediate goods affects trade costs. The results show that trade costs are large and vary significantly across goods, but the trends are downward for the total manufacturing industry and for the majority of the individual industries. Trade costs of non-OECD countries for all sectors are larger than those of OECD countries, and there is divergence between the trade costs until the 1980s. After the 1980s, there is steady catching up in trade costs of capital goods industries, labor intensive industries and the total manufacturing industry. But differences in average trade barriers are still more than 40% for these sectors. The results according to country group of the trading partner show that, for the total manufacturing industry, if exports come from the OECDs, the barriers to trade are lower than in the case of non-OECD exporters. At the sector level, on the other hand, the trade costs among non-OECDs are lower than the barriers to trade from OECDs to non-OECDs. I also examine which determinant has the largest effect on trade costs, and encounter endogeneity bias issue, which I correct using the differenced panel data approach.

Suggested Citation

  • Ozlem Yaylaci, 2012. "Evolution of Trade Costs," EcoMod2012 4267, EcoMod.
    • Handle: RePEc:ekd:002672:4267
    as

    Download full text from publisher

    File URL: http://ecomod.net/system/files/Evolution%20of%20Trade%20Costs_0.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Eaton, Jonathan & Kortum, Samuel, 2001. "Trade in capital goods," European Economic Review, Elsevier, vol. 45(7), pages 1195-1235.
    2. Inmaculada Martinez-Zarzoso & Celestino Suarez-Burguet, 2005. "Transport costs and trade: Empirical evidence for Latin American imports from the European union," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(3), pages 353-371.
    3. Simola, Antti & Kinnunen, Jouko & Törmä, Hannu & Kola, Jukka, 2010. "Bioenergy production in Finland and its effects on regional growth and employment," IAMO Forum 2010: Institutions in Transition – Challenges for New Modes of Governance 52705, Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
    4. Alberto Behar & Anthony J. Venables, 2011. "Transport Costs and International Trade," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 5, Edward Elgar Publishing.
    5. Baier, Scott L. & Bergstrand, Jeffrey H., 2009. "Estimating the effects of free trade agreements on international trade flows using matching econometrics," Journal of International Economics, Elsevier, vol. 77(1), pages 63-76, February.
    6. Levchenko, Andrei A. & Zhang, Jing, 2016. "The evolution of comparative advantage: Measurement and welfare implications," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 96-111.
    7. Serge Shikher, 2014. "International production, technology diffusion, and trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(1), pages 111-154, February.
    8. Jacks, David S. & Meissner, Christopher M. & Novy, Dennis, 2011. "Trade booms, trade busts, and trade costs," Journal of International Economics, Elsevier, vol. 83(2), pages 185-201, March.
    9. Gordon Wilmsmeier & Inmaculada Martínez-Zarzoso, 2009. "Determinants of maritime transport costs -- a panel data analysis for Latin American trade," Transportation Planning and Technology, Taylor & Francis Journals, vol. 33(1), pages 105-121, October.
    10. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(2), pages 441-487.
    11. Alessandro Olper & Valentina Raimondi, 2009. "Patterns and Determinants of International Trade Costs in the Food Industry," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(2), pages 273-297, June.
    12. Vicard, Vincent, 2011. "Determinants of successful regional trade agreements," Economics Letters, Elsevier, vol. 111(3), pages 188-190, June.
    13. Serge SHIKHER, 2010. "Determinants of Specialization and the Role of Trade Costs," EcoMod2010 259600156, EcoMod.
    14. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    15. repec:fth:bosecd:109 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thomas Orliac, 2012. "The economics of trade facilitation [L'économie de la facilitation des échanges]," SciencePo Working papers Main tel-03681980, HAL.
    2. Zakaria Sorgho, 2016. "RTAs' Proliferation and Trade-diversion Effects: Evidence of the ‘Spaghetti Bowl’ Phenomenon," The World Economy, Wiley Blackwell, vol. 39(2), pages 285-300, February.
    3. Sorgho, Zakaria, 2014. "RTAs’ Proliferation and Trade-diversion effects: Evidence of the “Spaghetti Bowl” Phenomenon," MPRA Paper 60503, University Library of Munich, Germany.
    4. Sorgho, Zakaria, 2015. "RTAs' Proliferation and Trade-Diversion Effects: Evidence of the "Spaghetti Bowl" Phenomenon," Working Papers 206223, University of Laval, Center for Research on the Economics of the Environment, Agri-food, Transports and Energy (CREATE).
    5. Cheong, Juyoung & Kwak, Do Won & Tang, Kam Ki, 2015. "Heterogeneous Effects of Preferential Trade Agreements: How does Partner Similarity Matter?," World Development, Elsevier, vol. 66(C), pages 222-236.
    6. Scott L. Baier & Amanda Kerr & Yoto V. Yotov, 2018. "Gravity, distance, and international trade," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 2, pages 15-78, Edward Elgar Publishing.
    7. Thorvaldur Gylfason & Inmaculada Martínez-Zarzoso & Per Magnus Wijkman, 2015. "Free Trade Agreements, Institutions and the Exports of Eastern Partnership Countries," Journal of Common Market Studies, Wiley Blackwell, vol. 53(6), pages 1214-1229, November.
    8. Schaak, Henning, 2015. "The Impact of Free Trade Agreements on International Agricultural Trade: A Gravity Application on the Dairy Product Trade and the ASEAN-China-FTA," 55th Annual Conference, Giessen, Germany, September 23-25, 2015 211619, German Association of Agricultural Economists (GEWISOLA).
    9. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    10. Costinot, Arnaud & Rodríguez-Clare, Andrés, 2014. "Trade Theory with Numbers: Quantifying the Consequences of Globalization," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 197-261, Elsevier.
    11. Sang-wook (Stanley) Cho & Hansoo Choi & Julián P. Díaz, 2018. "Do Free Trade Agreements Increase the New Goods Margin? Evidence from Korea," Open Economies Review, Springer, vol. 29(5), pages 1095-1122, November.
    12. Tal Sadeh, 2014. "The euro’s effect on trade," European Union Politics, , vol. 15(2), pages 215-234, June.
    13. Shingal, Anirudh, 2013. "Revisiting the trade effects of services agreements," MPRA Paper 51243, University Library of Munich, Germany.
    14. Soonchan Park & Innwon Park, 2023. "Firm size‐specific trade effects of regional trade agreements: Estimating extensive and intensive margins of trade," Asian Economic Journal, East Asian Economic Association, vol. 37(1), pages 82-112, March.
    15. Jayjit Roy, 2014. "On the robustness of the trade-inducing effects of trade agreements and currency unions," Empirical Economics, Springer, vol. 47(1), pages 253-304, August.
    16. Fugazza, Marco & Nicita, Alessandro, 2011. "Measuring preferential market access," MPRA Paper 38565, University Library of Munich, Germany.
    17. Rod Falvey & Neil Foster-McGregor, 2022. "The breadth of preferential trade agreements and the margins of exports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(1), pages 181-251, February.
    18. Chang, Pao-Li & Lee, Myoung-Jae, 2011. "The WTO trade effect," Journal of International Economics, Elsevier, vol. 85(1), pages 53-71, September.
    19. Salamat Ali & Chris Milner, 2022. "Trade costs and the composition of developing countries' exports," Review of Development Economics, Wiley Blackwell, vol. 26(4), pages 1971-1996, November.
    20. Elisaveta Archanskaia & Guillaume Daudin, 2012. "Heterogeneity and the Distance Puzzle," Documents de Travail de l'OFCE 2012-17, Observatoire Francais des Conjonctures Economiques (OFCE).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ekd:002672:4267. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Theresa Leary (email available below). General contact details of provider: https://edirc.repec.org/data/ecomoea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.