The Determinants of Trade Costs: A Random Coefficients Approach

15 Pages Posted: 9 Jul 2014

See all articles by Peter H. Egger

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment; Ludwig-Maximilians University of Munich; CESifo (Center for Economic Studies and Ifo Institute for Economic Research

Jan Průša

Charles University

Date Written: June 25, 2014

Abstract

This paper assesses whether the sensitivity of bilateral trade volumes to various trade cost factors is constant or varies across countries. It utilizes a random coefficients model and analyses a cross-sectional sample of bilateral trade data for 96 countries in 2005. We expect the elasticity of trade to vary particularly with bilateral distance and bilateral tariffs due to measurement error about these factors. Indeed, the variability of coefficients is significant for these trade cost measures. The results indicate that the elasticity of trade with respect to tariffs in different countries varies relatively more than that with respect to distance. This is consistent with there being a host of sources of measurement error about bilateral tariffs (due to strategic or non-strategic misreporting; the potential inappropriateness of the weighting of disaggregated tariffs; etc.).

Keywords: bilateral trade flows, gravity equation, random coefficients model, trade costs

JEL Classification: C29, F12, F17

Suggested Citation

Egger, Peter H. and Průša, Jan, The Determinants of Trade Costs: A Random Coefficients Approach (June 25, 2014). CESifo Working Paper Series No. 4859. Available at SSRN: https://ssrn.com/abstract=2463592

Peter H. Egger

Ifo Institute for Economic Research - International Trade and Foreign Direct Investment ( email )

Poschingerstr. 5
Munich, DE-81679
Germany
+49 0 89 9224 1238 (Phone)
+49 0 89 985369 (Fax)

HOME PAGE: http://www.cesifo-group.de/portal/page?_pageid=36,425628&_dad=portal&_schema=PORTAL

Ludwig-Maximilians University of Munich

Schackstr. 4
Munich, 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research

Poschinger Str. 5
Munich, DE-81679
Germany

Jan Průša (Contact Author)

Charles University ( email )

Opletalova St. 26
Prague, 11000
Czech Republic

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