Defining, Measuring, Explaining and Reducing the Cost of International Trade
2. Measurement There is no ideal measure of trade costs because there is no agreed definition of trade costs.1 Usual conceptions include more than just shipping and customs clearance costs, but without consensus about which behindthe-border costs impinge on international rather than domestic trade. Even when there is rough agreement on definition, however, there are serious empirical difficulties in measuring trade costs. In the burgeoning literature on trade costs, many authors have estimated magnitudes from gravity models, essentially ascribing variations in the residual trade flows to ‘trade costs’. At best these measure the impact of trade costs on the level of trade rather than trade costs themselves, and at worst they may be including important omitted variables in ‘trade costs’. Other researchers have imputed trade costs and changes in trade costs over time by comparing the ratio of domestic to international trade flows. Survey or perceptions data are also frequently used, especially the World Bank’s Doing Business data on the costs and time of shipping a standardized container. The common feature of all of the measures in this paragraph is that they are proxies for trade costs rather than measures of costs actually incurred by traders. Several international agencies produce micro data on trade costs. The World Customs Organization conducts time release studies of time taken to clear customs. Various United Nations agencies and World Bank departments have produced time/cost studies along specific trade routes or transport corridors. These are the most firmly rooted measures of trade costs, but they...
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