Trade Facilitation
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Trade Facilitation

Defining, Measuring, Explaining and Reducing the Cost of International Trade

Patricia Sourdin and Richard Pomfret

This up-to-date and informative book provides a comprehensive treatment of the costs of trading across borders and of trade facilitation policies. While traditional tariff and non-tariff barriers to trade have been reduced, international trade continues to involve higher costs in money and time than domestic trade. These include not only transport costs, that are determined by distance and commodity characteristics, but also at-the-border and behind-the-border costs which can be reduced by appropriate policies. Research on trade costs has flourished since the turn of the century, and this book by Patricia Sourdin and Richard Pomfret, takes stock of our increased knowledge of the nature and magnitude of trade costs, analysing why they are high and how they can be reduced to increase the gains from trade.
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Chapter 2: Measurement

Patricia Sourdin and Richard Pomfret


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 are partial...

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