Infrastructure’s Role in Lowering Asia’s Trade Costs

Infrastructure’s Role in Lowering Asia’s Trade Costs

Building for Trade

ADBI series on Asian Economic Integration and Cooperation

Edited by Douglas H. Brooks and David Hummels

This book analyses and draws policy implications from infrastructure’s central role in lowering Asia’s trade costs.

Chapter 4: Empirical Estimates of Transportation Costs: Options for Enhancing Asia’s Trade

Prabir De

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

Extract

* Prabir De INTRODUCTION 1. The last few decades have seen significant changes in international economic integration. A growing number of researchers have started to reveal a long list of trade cost barriers that affect international economic integration. According to Anderson and van Wincoop, ‘The 170 per cent of “representative” trade costs in industrialized countries breaks down into 21 per cent transportation costs, 44 per cent border related trade barriers and 55 per cent retail and wholesale distribution costs’ (Anderson and van Wincoop, 2004, p. 692). What makes any study of trade costs in Asia significant is that the price of the vast majority of traded goods depends on many exogenous factors. On the one hand, Asia conducts increasingly higher trade, where higher trade costs push up the landed price of imports, and, on the other, Asia’s trade covers an increasingly large volume of intermediate goods, where expensive imports, resulting from higher trade costs, escalate the cost of production. The present chapter attempts to contribute to the empirical literature on the dynamics of Asia’s trade. By using direct and indirect evidence on trade barriers, it seeks to enhance understanding of trade costs in Asia.1 How are the Asian countries performing in reducing trade costs? Which barriers matter most – tariff or transport costs? Do inland transportation costs influence Asian trade much more significantly than international transportation costs? What do the estimates of freight rates look like across Asian countries? This chapter provides empirical evidence to show that...

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