The Determinants of Trade Costs: A Random Coefficients Approach

Peter Egger and Jan Prusa

No 4859, CESifo Working Paper Series from CESifo

Abstract: This paper assesses whether the sensitivity of bilateral trade volumes to various trade cost factors is constant or varies across countries. It utilizes a random coeffcients model and analyses a cross-sectional sample of bilateral trade data for 96 countries in 2005. We expect the elasticity of trade to vary particularly with bilateral distance and bilateral tariffs due to measurement error about these factors. Indeed, the variability of coefficients is significant for these trade cost measures. The results indicate that the elasticity of trade with respect to tariffs in different countries varies relatively more than that with respect to distance. This is consistent with there being a host of sources of measurement error about bilateral tariffs (due to strategic or non-strategic misreporting; the potential inappropriateness of the weighting of disaggregated tariffs; etc.).

Keywords: bilateral trade flows; gravity equation; random coefficients model; trade costs (search for similar items in EconPapers)
JEL-codes: C29 F12 F17 (search for similar items in EconPapers)
Date: 2014
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Related works:
Journal Article: The determinants of trade costs: a random coefficient approach (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4859

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