Citation

Discussion Paper Details

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Title: On the Measurement of Trade Costs: Direct vs. Indirect Approaches to Quantifying Standards and Technical Regulations

Author(s): Natalie Chen and Dennis Novy

Publication Date: March 2012

Keyword(s): Gravity, Measurement, Nontariff Measures, Product Standards, Technical Barriers to Trade, Technical Regulations and Trade Costs

Programme Area(s): International Trade and Regional Economics

Abstract: In this article, we review the literature on the measurement of trade costs in international trade with a special emphasis on nontariff measures and in particular on standards and technical regulations. We distinguish 'direct' from 'indirect' approaches. The direct approach collects observable data or proxy variables on trade cost components which are then typically used as regressors in a gravity equation of trade. Instead, the indirect approach infers the extent of trade impediments from trade flows. It compares actual trade flows to the trade flows predicted by a hypothetical frictionless benchmark scenario based on a micro-founded trade model, attributing the deviation of actual from predicted trade flows to trade frictions. We argue that economists and policymakers can gain useful insights from both approaches.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8883

Bibliographic Reference

Chen, N and Novy, D. 2012. 'On the Measurement of Trade Costs: Direct vs. Indirect Approaches to Quantifying Standards and Technical Regulations'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8883