RESEARCH AND ANALYSIS: WORKING PAPERS

The WTO Trade Cost Index and Its Determinants

This study provides a decomposition of the WTO Global Trade Costs Index into five policy-relevant components: transport and travel costs; information and transaction costs; ICT connectedness; trade policy and regulatory differences; and governance quality. The WTO Global Trade Costs Index is based on a new methodology by Egger et al. (2021) that delivers directional trade cost estimates and sector-specific elasticities which are crucial for inferring trade costs from trade flows data. The resulting measure of trade costs includes all factors that burden foreign sales more than domestic ones. In this study, we run a sectoral regression analysis to determine what drives trade costs variation across partners and use the results to decompose the variation in trade costs in each sector.

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We show that transport and travel costs play the most important role in overall trade costs both for goods and services. Trade policy and regulatory differences are the second major component of trade costs in most sectors, accounting for at least 14%. The importance of this component is particularly striking for trade among lower-income economies. Moreover, our results also show that trade policy in services sectors matters for trade costs in goods, and vice versa. Finally, we find that access to information and communication technology is especially important for trade costs in services where its importance has increased over time, highlighting the role that digital delivery plays in this sector.

No: ERSD-2021-6

Authors: Stela Rubínová and Mehdi Sebti

Manuscript date: January 2021

Key Words:

Trade costs; gravity model; non-tariff barriers; trade integration; trade elasticity

JEL classification numbers:

F10; F14; F15

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Disclaimer 

This is a working paper, and hence it represents research in progress. The opinions expressed in this paper are those of its author. They are not intended to represent the positions or opinions of the WTO or its members and are without prejudice to members' rights and obligations under the WTO. Any errors are attributable to the author.

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