Infrastructure and Trade in Asia

Infrastructure and Trade in Asia

ADBI series on Asian Economic Integration and Cooperation

Edited by Douglas H. Brooks and Jayant Menon

Analysis of infrastructure’s role in facilitating international trade and consequently regional economic integration is still rudimentary. This original book fills that knowledge gap by exploring relevant concepts, measurement issues, aspects of the implementation of trade-related infrastructure facilities and their impacts on poverty, trade, investment and macroeconomic balances.

Chapter 5: Empirical Estimates of Trade Costs for Asia

Prabir De

Subjects: asian studies, asian development, asian economics, development studies, asian development, development economics, economics and finance, asian economics, development economics


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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