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The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs

Alfonso Irarrazabal1,2; Andreas Moxnes3,4; Luca David Opromolla5

1 BI Norwegian Business School · 2 Norges Bank · 3 Center for Economic and Policy Research · 4 University of Oslo · 5 Banco de Portugal

The Review of Economics and Statistics 2015

Trade costs are often additive. Well-known examples are quotas, per unit tariffs, and, in part, transportation costs. In spite of this, we have no broad and systematic evidence of the magnitude of these costs. In this paper, we develop a new empirical framework for estimating additive trade costs from standard firm-level trade data. Our results suggest that additive barriers are on average 14%, expressed relative to the median price. The point estimates are strongly correlated with common proxies for trade costs. Using our microestimates, we show that an additive import tariff reduces welfare and trade by more than an equal-yield multiplicative tariff.

DOI
10.1162/rest_a_00517
Volume
97 (4)
Pages
777-792
Language
en
Export
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Sources
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