International Trade Integration: A Disaggregated Approach

Natalie A. Chen () and Dennis Novy ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper investigates the sources and size of trade barriers at the industry level. We derive amicro-founded measure of industry-specific bilateral trade integration that has an in-builtcontrol for time-varying multilateral resistance. This trade integration measure is consistentwith a broad range of recent trade models including the Anderson and van Wincoop (2003)framework, the Ricardian model by Eaton and Kortum (2002) and heterogeneous firmsmodels. We use it to explore trade barriers for manufacturing industries in European Unioncountries between 1999 and 2003. We find a large degree of trade cost heterogeneity acrossindustries. The most important trade barriers are transportation costs and policy factors suchas Technical Barriers to Trade. Trade integration is generally lower for countries that optedout of the Euro or did not abolish border controls in accordance with the SchengenAgreement. Reductions in trade barriers explain about one-half of the growth in trade overthe period 1999-2003 and are therefore a major driving force of the EU Single Market.

Keywords: Trade Integration; Gravity; Trade Costs; Multilateral Resistance; Industries; Disaggregation; European Union (search for similar items in EconPapers)
JEL-codes: F10 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2009-01
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Related works:
Working Paper: International Trade Integration: A Disaggregated Approach (2008)
Working Paper: International Trade Integration: A Disaggregated Approach (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0908

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