NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs

Alfonso Irarrazabal, Andreas Moxnes, Luca David Opromolla

NBER Working Paper No. 19236
Issued in July 2013
NBER Program(s):   ITI

Casual empiricism suggests that additive trade costs, such as quotas, per-unit tariffs, and, in part, transportation costs, are prevalent. In spite of this, we have no broad and systematic evidence of the magnitude of these costs. 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 percent, expressed relative to the median price. The point estimates are strongly correlated with common proxies for trade costs. Using our micro estimates, we show that a reduction in additive trade costs produces much higher welfare gains and growth in trade flows than a similar reduction in multiplicative trade costs.

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Document Object Identifier (DOI): 10.3386/w19236

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