Assessing the Impact of Communication Costs on International Trade
Recent research suggests that trade costs influence the pattern of specialization and trade, but there is limited empirical research on the determinants of trade costs. The existing literature identifies a range of barriers that separate nations, b...
| Main Authors: | , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/11/2079746/assessing-impact-communication-costs-international-trade http://hdl.handle.net/10986/19205 |
| Summary: | Recent research suggests that trade
costs influence the pattern of specialization and trade, but
there is limited empirical research on the determinants of
trade costs. The existing literature identifies a range of
barriers that separate nations, but then typically focuses
only on transport costs. Although communication costs figure
prominently in intuitive explanations and casual
observations, they have played little role in the formal
analysis of trade costs. The authors seek to examine whether
this neglect matters, and whether the inclusion of the
magnitude and variation of communication costs across
partner countries can add value to existing explanations of
the pattern of trade. The authors develop a simple
multi-sector model of "impeded" trade that
generates hypotheses in a gravity-type estimation framework.
The main proxies for bilateral communication costs are the
per-minute country-to-country calling prices charged in the
importing and exporting countries. The use of bilateral
variations in prices yields estimates that are superior to
the ones obtained from country-specific measures of
communication infrastructure used in previous studies. The
authors find that international variations in communication
costs have a significant influence on bilateral trade flows,
at the aggregate level and for most individual sectors
disaggregated according to the 2-digit SITC classification.
Since information and communication needs are likely to be
much greater for differentiated goods, the authors test
whether trade in these products is more sensitive to
variations in the costs of communication. Using the Rauch
classification of product heterogeneity, the estimates
suggest that the impact of communication costs on trade in
differentiated products is as much as one-third larger than
on trade in homogenous products. Finally, the authors
verify, to the extent possible, that the significance of
communication costs is not driven by their endogeneity or by
omitted variables. |
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