Empirical Estimated of Trade Costs for Asia

Abstract

In this paper, the authors determine how policy and environmental barriers affect international trade, using data at 4-digit HS. The authors estimate a modified gravity equation, controlling for remoteness, for eight sectors in 10 Asian countries. Looking at the impact of the 'non-price' and 'price' factors on international trade, this paper finds that country's tariff, infrastructure quality and transport costs are the main three determinants for cross-country variations of trade flows. The major findings of the paper can be summarised as follows: (i) bilateral infrastructure quality is a principal determinant of trade performance, (ii) bilateral tariffs, which are largely ignored in the empirical gravity literature in context of Asia, has an impact on trade, (iii) the bilateral transport costs strongly influence the trade flows, and (iv) except transport equipment, trade in all other manufacturing sectors, considered in this study, are influenced by tariffs, transport costs and infrastructure quality.

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