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

Alfonso Irarrazabal, Andreas Moxnes and Luca David Opromolla

Posted Online September 28, 2015
https://doi.org/10.1162/REST_a_00517

Review of Economics and Statistics

Volume 97 | Issue 4 | October 2015
p.777-792
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The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs

Alfonso Irarrazabal, Andreas Moxnes and Luca David Opromolla
https://doi.org/10.1162/REST_a_00517
Received: August 20, 2012
Accepted: August 28, 2014
Published Online: September 28, 2015
Abstract

Abstract

Trade costs are often additive. Well-known examples are quotas, per unit tariffs, and, in part, transportation costs. In spite of this, we have no broad and systematic evidence of the magnitude of these costs. In this paper, 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%, expressed relative to the median price. The point estimates are strongly correlated with common proxies for trade costs. Using our microestimates, we show that an additive import tariff reduces welfare and trade by more than an equal-yield multiplicative tariff.

Alfonso Irarrazabal
BI Norwegian Business School and Norges Bank
Andreas Moxnes
University of Oslo, NBER and CEPR
Luca David Opromolla
Banco de Portugal, Centre for Economic Policy Research (CEPR), CESifo Research Network, and UECE Research Unit on Complexity and Economics
https://doi.org/10.1162/REST_a_00517
Abstract

Abstract

Trade costs are often additive. Well-known examples are quotas, per unit tariffs, and, in part, transportation costs. In spite of this, we have no broad and systematic evidence of the magnitude of these costs. In this paper, 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%, expressed relative to the median price. The point estimates are strongly correlated with common proxies for trade costs. Using our microestimates, we show that an additive import tariff reduces welfare and trade by more than an equal-yield multiplicative tariff.

Alfonso Irarrazabal
BI Norwegian Business School and Norges Bank
Andreas Moxnes
University of Oslo, NBER and CEPR
Luca David Opromolla
Banco de Portugal, Centre for Economic Policy Research (CEPR), CESifo Research Network, and UECE Research Unit on Complexity and Economics
Download Options

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

Alfonso Irarrazabal, Andreas Moxnes and Luca David Opromolla
https://doi.org/10.1162/REST_a_00517
Received: August 20, 2012
Accepted: August 28, 2014
Published Online: September 28, 2015
Abstract

Abstract

Trade costs are often additive. Well-known examples are quotas, per unit tariffs, and, in part, transportation costs. In spite of this, we have no broad and systematic evidence of the magnitude of these costs. In this paper, 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%, expressed relative to the median price. The point estimates are strongly correlated with common proxies for trade costs. Using our microestimates, we show that an additive import tariff reduces welfare and trade by more than an equal-yield multiplicative tariff.

Alfonso Irarrazabal
BI Norwegian Business School and Norges Bank
Andreas Moxnes
University of Oslo, NBER and CEPR
Luca David Opromolla
Banco de Portugal, Centre for Economic Policy Research (CEPR), CESifo Research Network, and UECE Research Unit on Complexity and Economics
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