ADBI series on Asian Economic Integration and Cooperation
Edited by Douglas H. Brooks and Jayant Menon
Chapter 5: Empirical Estimates of Trade Costs for Asia
1 Prabir De I. INTRODUCTION Trade costs have become a key area for reform in regional and multilateral context mainly due to the rise in volume and complexity of international trade. Trade costs include all costs incurred in getting a good to a ﬁnal user other than the marginal cost of producing the good itself, such as transportation costs (both freight costs and time costs), policy barriers (tariﬀs and non-tariﬀ barriers), information costs, contract enforcement costs, costs associated with the use of diﬀerent currencies, legal and regulatory costs, and local distribution costs (wholesale and retail). Components of trade costs form a potentially important barrier to trade, and some of these are provided in Table 5.1. Why do we need to give special attention to trade costs? One compelling argument is that countries will not fully realize the gains from trade liberalization unless they also initiate adequate infrastructure interventions in order to reduce costs of doing trade across borders. For example, reductions in tariﬀ levels – at home and abroad – will oﬀer fewer beneﬁts to economies whose international trading infrastructures are ill-equipped to handle increased imports or clear exports quickly enough. Therefore, higher trade costs is an obstacle to trade and it impedes the realization of gains from trade liberalization.2 Studies show that integration is the result of reduced costs of transportation in particular and other infrastructure services in general.3 Direct evidence on border costs shows that tariﬀ barriers are now low in most countries, on average (tradeweighted...
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