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Unit 4 Macro: Trade Costs Higher for Developing Countries

Sunday, March 17, 2013
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Attention is often focused on the tariff and non-tariff barriers to trade and in particular, the extent to which trade from developing countries to advanced high-income nations is influenced by import taxes. Average tariff rates have come down to historic lows in recent years although non-tariff barriers proliferate.

New research from a group of European economists finds that trade costs - a concept that captures the broader expenses of getting goods and services across borders into international markets - are much higher than tariffs. And for developing countries these costs have not fallen to the same extent as richer countries.

"Trade costs are an important policy issue for all countries, but particularly for developing countries. They partly determine a country’s ability to position itself in global networks of trade and production"

These trade costs include logistics costs i.e. freight charges, shipping fees, border fees and the expenses of finding overseas distribution agents at wholesale and retail level. Many lower income nations suffer from inadequate infrastructure which increases the time and cost of getting  tangible products to their borders and into connected or distant markets. Landlocked countries face extra difficulties - this aspect is one of Professor Paul Collier's four development traps.

"A recently launched ESCAP-World Bank trade cost database shows that trade costs of landlocked developing countries are still extremely high, typically four to seven times higher than those of most other middle-income developing countries in Asia largely due to constraints they face due to their lack of access to sea." (More here)




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