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On the measurement of trade costs: direct vs. indirect approaches to quantifying standards and technical regulations

Published online by Cambridge University Press:  06 July 2012

NATALIE CHEN  and
DENNIS NOVY
NATALIE CHEN*
Affiliation:
Department of Economics and Centre for Competitive Advantage in the Global Economy (CAGE), University of Warwick and CEPR
DENNIS NOVY*
Affiliation:
Department of Economics and Centre for Competitive Advantage in the Global Economy (CAGE), University of Warwick, CESifo, and CEPR
*
*Email: [email protected] (corresponding author)
**Email: [email protected]
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Abstract

In this article, we review the literature on the measurement of trade costs in international trade with a special emphasis on non-tariff 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 policy-makers can gain useful insights from both approaches.

Type
Review Article
Information
World Trade Review , Volume 11 , Issue 3: Symposium Issue: Standards and Non-Tariff Barriers in Trade , July 2012 , pp. 401 - 414
Copyright
Copyright © Natalie Chen and Dennis Novy 2012

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