TRADE COSTS AND TRADE COMPOSITION

Abstract

In this paper, we investigate whether countries' trade costs act like other national endowments by affecting the composition of countries' exports. Using an econometric approach that controls for endogeneity by accounting for potentially relevant omitted variables, we find strong evidence for a sample of 37 industrialized and transition countries that national trade costs systematically affect the composition of trade and can be viewed therefore as a source of comparative advantage. Industries located in countries with low trade costs capture significantly higher shares of world exports, where this effect is stronger in trade cost intensive industries. (JEL F11, F14)

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