Toward a Geography of Trade Costs

By David L. Hummels. GTAP Working Paper, 2003

976 citations recorded by the source corpus.

What are the barriers that separate nations? While recent work provides intriguing clues, we have remarkably little concrete evidence as to the nature, size, and shape of barriers. This paper offers direct and indirect evidence on trade barriers, moving us toward a comprehensive geography of trade costs. There are three main contributions. One, we provide detailed data on freight rates for a number of importers. Rates vary substantially over exporters, and aggregate expenditures on freight are at the low end of the observed range. This suggests import choices are made so as to minimize transportation costs. Two, we estimate the technological relationship between freight rates and distance and use this to interpret the trade barriers equivalents of common trade barrier proxies taken from the literature. The calculation reveals implausibly large barriers. Three, we use a multi-sector model of trade to isolate channels through which trade barriers affect trade volumes. The model motivates an estimation technique that delivers direct estimates of substitution elasticities. This allows a complete characterization of the trade costs implied by trade flows and a partition of those costs into three components: explicitly measured costs (tariffs and freight), costs associated with common proxy variables, and costs that are implied but unmeasured. Acknowledgments: Thanks for the gracious provision of data go to Jon Haveman, Rob Feenstra, Azita Amjadi and the ALADI secretariat. Thanks for helpful suggestions on previous drafts go to seminar participants at the Universities of Chicago, Michigan, and Texas, Boston University, NBER and the 4th Annual EIIT Conference at Purdue University. Finally, Julia Grebelsky and Dawn Conner provided outstanding research assistance. This research was funded by a grant from the University of Chicago’s Graduate School of Business.

Subfields: Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/269e039aceaf973b6fb697a4c686880e9087d065

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Citations in the corpus

Estimating Trade Policy Effects with Structural Gravity (2016, positive): “…to overcome the computational difficulties of the custom programming from Anderson and van Wincoop (2003), while at the same time fully accounting for the MR terms, Hummels (2001) and Feenstra (2004) advocate the use of directional (exporter and importer) fixed effects in cross-section estimations.”
Shaky Roads and Trembling Exports: Assessing the Trade Effects of Domestic Infrastructure Using a Natural Experiment (2012, background): “35 Hummels and Skiba (2004) find that f.o.b. prices increase with international freight rates. More specifically, their estimation results suggest that doubling freight costs increase f.o.b. prices by 80-141 percent. These results provide empirical support to the Alchian-Allen conjecture. 36 We use ”
The Cost of Rich (and Poor) Country Protection to Developing Countries (2001, result): “This result has been supported by recent estimates by David Hummels (2000), who estimates Armington elasticities comparable in magnitude with the doubled estimates.”
Gravity Equations: Workhorse,Toolkit, and Cookbook (2013, neutral): “In some cases the ad valorem freight rates are used instead of or in addition to tariff rates (Hummels (1999) in particular).”
Aid-for-trade facilitation (2009, neutral): “9 For example see; Hummels et al. (2007). 10 Specific countries and specific types of trade facilitation reforms, including for example the country studies in Wilson et al.”
Estimating the Armington elasticity: The importance of study design and publication bias (2020, result): “The evidence on the effect of data disaggregation is consistent with the prevalent opinion in the literature following mostly Hummels (1999): higher disaggregation of data leads to more homogenous products and brings higher international substitutability.”
Comparative advantage, demand for external finance, and financial development (2006, methodology): “But is this the case in practice? Estimating the gravity model using sectorlevel data is becoming increasingly common (see Rauch, 1999; Rauch and Trindade, 2002; Hummels, 2001; Evans, 2003, Feenstra, Markusen, and Rose, 2001, Lai and Trefler, 2002; Chaney, 2006). Though studies differ in the level o”
Taste Parameters as Model Residuals: Assessing the 'Fit' of an Armington Trade Model (2005, background): “Hummels (2000) finds even larger estimates (3 to 8 for the choice across importers) in cross-section data.”
Infrastructure and Trade (2004, background): “In general agricultural and mining products are more expensively shipped than manufactured goods (see Hummels, 1999).”
'Dual' Gravity: Using Spatial Econometrics to Control for Multilateral Resistance (2007, methodology): “For example, Hanson (2005), using aggregate data for the US, obtains about 7 with non-linear least squares and about 2 with GMM. Estimates in Hummels (2001) vary from 2 to 5.26.”
Economic Geography and International Inequality (2001, methodology): “For example, using customs data, Hummels (1999) finds that average expenditure on freight and insurance as a proportion of the value of manufacturing imports is 10.3% in US, 15.5% in Argentina, and 17.7% in Brazil.”
Markups, quality, and transport costs (2012, background): “Hummels and Skiba (2004) estimate an elasticity of transport costs to distance of 0.26.20 Furthermore, Hummels (2001) shows that for in the US, the share of freight costs in import prices is 3.8%.”
Heterogeneous effects of economic integration agreements (2018, background): “Following Hummels (1999), Hummels and Skiba (2004), and Hummels (2007), freight costs per unit of the good (freightij) drive a wedge between origin and destination prices; hence, pij = pitij + freightij = pi(tij + frij), where frij = freightij∕pi.”