Working Paper: NBER ID: w19236
Authors: Alfonso Irarrazabal; Andreas Moxnes; Luca David Opromolla
Abstract: Casual empiricism suggests that additive trade costs, such as quotas, per-unit tariffs, and, in part, transportation costs, are prevalent. In spite of this, we have no broad and systematic evidence of the magnitude of these costs. 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 percent, expressed relative to the median price. The point estimates are strongly correlated with common proxies for trade costs. Using our micro estimates, we show that a reduction in additive trade costs produces much higher welfare gains and growth in trade flows than a similar reduction in multiplicative trade costs.
Keywords: trade costs; additive costs; welfare gains; international trade
JEL Codes: F1; F10; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Additive trade costs (F12) | Demand elasticity (D12) |
| Reduction in additive trade costs (F12) | Higher welfare gains (D69) |
| Reduction in additive trade costs (F12) | Increased trade flows (F19) |
| Additive trade costs distort relative prices (F12) | Affect consumption patterns (D10) |
| Presence of additive trade costs (F12) | Larger gains from trade (F12) |
| Ignoring additive trade costs (F12) | Misunderstanding of impact on trade dynamics (F69) |