Toward a Geography of Trade Costs

54 Pages Posted: 20 Apr 1999

See all articles by David L. Hummels

David L. Hummels

Purdue University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: January 1999

Abstract

What are the barriers that separate nations; While recent work provides intriguing clues, we have remarkably little concrete evidence as to the nature, size, and shape of barriers. This paper offers direct and indirect evidence on trade barriers, moving us toward a comprehensive geography of trade costs. There are three main contributions. One, we provide detailed data on freight rates for a number of importers Rates vary substantially over exporters, and aggregate expenditures on freight are at the low end of the observed range. This suggests import choices are made so as to minimize transportation costs. Two, we estimate the technological relationship between freight rates and distance and use this to interpret the trade barriers equivalents of common trade barrier proxies taken from the literature. The calculation reveals implausibly large barriers. Three, we use a multi-sector model of trade to isolate channels through which trade barriers affect trade volumes. The model motivates an estimation technique that delivers direct estimates of substitution elasticities. This allows a complete characterization of the trade costs implied by trade flows and a partition of those costs into three components: explicitly measured costs (tariffs and freight), costs associated with common proxy variables, and costs that are implied but unmeasured.

JEL Classification: F12, F15

Suggested Citation

Hummels, David L., Toward a Geography of Trade Costs (January 1999). Available at SSRN: https://ssrn.com/abstract=160533 or http://dx.doi.org/10.2139/ssrn.160533

David L. Hummels (Contact Author)

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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