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Lumpy Trade and the Welfare Effects of Administrative Barriers

Cecília Hornok and Miklós Koren

No 14, CeFiG Working Papers from Center for Firms in the Global Economy

Abstract: Using detailed U.S. and Spanish export data, we document that administrative trade costs of per shipment nature (documentation, customs clearance and inspection) lead to less frequent and larger-sized shipments, i.e. more lumpiness, in international trade. We build a model to analyze these effects and their welfare consequences. Exporters decide not only how much to sell at a given price, but also how to break up total trade into individual shipments. Consumers value frequent shipments, because they enable them to consume close to their preferred dates. Having fewer shipments hence entails a welfare cost. Calibrating the model to observed shipping frequencies and per-shipment costs, we show that countries would gain 2--3 percent of their GDP by eliminating such barriers. This suggests that trade volumes alone are insufficient to understand the gains from trade.

Date: 2011-09-22, Revised 2011-09-22
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