Country Trade Costs, Comparative Advantage and the Pattern of Trade: Multi-Country and Product Panel Evidence

This paper investigates whether differences across countries in overall country-specific trade costs affect comparative advantage. It does so by examining whether the commodity composition of countries’ trade is driven by differences in countries’ trade costs, as well as by differences in traditional factor endowments. Industry export shares across up to 71 countries and 158 manufacturing industries for five year periods over the period 1972 to 1992 are shown to be greater in trade cost sensitive industries for countries with relatively low national trade costs. This is after controlling for factor-intensity differences across industries and for endowment differences (physical and human capital) between countries. Further, these relationships are more evident in exporting to global markets than to local or regional markets.