Toward a Geography of Trade Costs

TLDR

Barriers between nations are poorly understood in terms of their nature, size, and shape, despite recent intriguing clues. The paper provides direct and indirect evidence on trade barriers to build a comprehensive geography of trade costs. The authors present three main contributions: detailed freight‑rate data across importers, a technological model linking freight rates to distance to interpret proxy barriers, and a multi‑sector trade model that isolates barrier channels and estimates substitution elasticities. The study finds that freight rates vary.

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.