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Market entry and trade weighted import costs
Author(s) -
Bridgman Benjamin
Publication year - 2013
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12044
Subject(s) - economics , weighting , welfare , quality (philosophy) , trade barrier , international economics , international trade , medicine , philosophy , epistemology , market economy , radiology
Trade weighting is a common method of aggregating trade frictions. It will understate changes in these costs when there are non‐ ad valorem trade costs and quality differences. Newly traded goods enter at higher trade costs than previously traded ones. Lower import costs shift trade to low‐quality goods with higher measured trade costs. These effects are quantitatively important. U.S. import costs fall more than twice as fast as trade weighted measures from 1974 to 2004 after the impact of shifting quality and newly traded goods is accounted for. Empirical estimates that use trade weighting will underestimate the welfare impact of trade costs.