The impact of trade costs on exports: An empirical modeling

Studies, which have discussed some of the important issues concerning the measurement of trade costs, have conceded that the literature is still in the early stages of understanding and measuring what the real costs are. It is in this context, decomposing trade costs into 'natural' costs, 'behind the border' costs, 'explicit beyond the border' costs, and 'implicit beyond the border' costs, this paper suggests a method to measure the impacts of these components on changes in exports between countries in the absence of complete information on all the components of trade costs in home and partner countries. Empirical measurement has been demonstrated using 1999 and 2004 trade data from Pakistan. The results show that Pakistan's export growth between 1999 and 2004 came mainly from the reduction in both 'explicit and implicit beyond the border' trade costs in partner countries.

Research Highlights► A method to measure the impacts of trade costs on export growth is suggested. ► The conventional gravity model has been modified to incorporate trade costs. ► Empirical analysis demonstrated using 1999 and 2004 trade data from Pakistan.