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

43 Pages Posted: 19 Jul 2013 Last revised: 23 Jan 2022

See all articles by Alfonso A. Irarrazabal

Alfonso A. Irarrazabal

New York University (NYU) - Department of Economics

Andreas Moxnes

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Luca David Opromolla

Bank of Portugal; CEPR; UECE - Research Unit on Complexity in Economics

Date Written: July 2013

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.

Suggested Citation

Irarrazabal, Alfonso A. and Moxnes, Andreas and Opromolla, Luca David, The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs (July 2013). NBER Working Paper No. w19236, Available at SSRN: https://ssrn.com/abstract=2295851

Alfonso A. Irarrazabal (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

Andreas Moxnes

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

Luca David Opromolla

Bank of Portugal ( email )

Rua Francisco Ribeiro 2
Lisbon, 1150-165
Portugal

CEPR ( email )

London
United Kingdom

UECE - Research Unit on Complexity in Economics ( email )

ISEG/UTL Rua Miguel Lupi 20
Lisboa, 1249-078
Portugal

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