The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs

Casual empiricism suggests that additive trade costs, such as quotas, per-unittariffs, and, in part, transportation costs, are prevalent. In spite of this, we haveno broad and systematic evidence of the magnitude of these costs. We develop anew empirical framework for estimating additive trade costs from standard firmleveltrade data. Our results suggest that additive barriers are on average 14percent, expressed relative to the median price. The point estimates are stronglycorrelated with common proxies for trade costs. Using our micro estimates, weshow that a reduction in additive trade costs produces much higher welfare gainsand growth in trade flows than a similar reduction in multiplicative trade costs