Warwick Economic Research Paper No. 764
39 Pages Posted: 14 Nov 2006
Date Written: October 2006
International trade costs are of vital importance because they determine trade patterns and therefore economic performance. This paper develops a new micro-founded measure of international trade costs. It is based on a multi-country general equilibrium model of trade that incorporates bilateral 'iceberg' trade costs. The model results in a gravity equation from which the'implied trade costs can be easily computed. The trade cost measure is intuitive, takes multilateral resistance into account and yields empirical results that are economically sensible. It is found that during the post-World War II period trade costs have declined markedly. The dispersion of trade costs across countries can best be explained by geographical and historical factors like distance and colonial linkages but also by tariffs and free trade agreements.
Keywords: Trade Costs, Gravity, Distance, Economic Integration
JEL Classification: F1, F4
Suggested Citation: Suggested Citation
Novy, Dennis, Is the Iceberg Melting Less Quickly? International Trade Costs after World War II (October 2006). Warwick Economic Research Paper No. 764. Available at SSRN: https://ssrn.com/abstract=944421 or http://dx.doi.org/10.2139/ssrn.944421