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Is the Iceberg Melting Less Quickly? International Trade Costs after World War II

Warwick Economic Research Paper No. 764

39 Pages Posted: 14 Nov 2006  

Dennis Novy

University of Warwick; Centre for Economic Policy Research (CEPR); Centre for Economic Performance (CEP); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 2006

Abstract

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

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

Dennis Novy (Contact Author)

University of Warwick ( email )

Department of Economics
Coventry CV4 7AL
United Kingdom
+44 (0) 2476150046 (Phone)

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/novy/

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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