Regional Trade in Northeast Asia: Why Do Trade Costs Matter?

37 Pages Posted: 18 Oct 2006

See all articles by Prabir De

Prabir De

Research and Information System for Developing Countries (RIS)

Date Written: September 2006

Abstract

Trade costs are often cited as an important determinant of the volume of trade. This paper provides enough evidence to ascertain that today's trade issues in Northeast Asia go beyond the traditional mechanisms of tariffs, and include "behind-the-border" issues. By estimating a modified gravity equation, controlling for endogeneity and remoteness, we find that variations in transaction costs along with trade infrastructure facilities have significant influence on regional trade flows in Northeast Asia. On average, 10 percent saving in transaction costs increases imports by about 5 percent in Northeast Asia. This paper concludes that when tariffs tend to become low in Northeast Asia, the economies in this region could potentially benefit substantially from higher trade provided trade costs are well controlled.

Keywords: trade costs, transaction costs, infrastructure, regional trade, tariff

JEL Classification: F02, F10, F15

Suggested Citation

De, Prabir, Regional Trade in Northeast Asia: Why Do Trade Costs Matter? (September 2006). CESifo Working Paper Series No. 1809, Available at SSRN: https://ssrn.com/abstract=938373

Prabir De (Contact Author)

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