The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs
Alfonso A. Irarrazabal, Andreas Moxnes, Luca David Opromolla
Photo: The MIT Press
The Review of Economics and Statistics, October 2015, 97(4): 777–792
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.