This paper analyzes the effects of non-tariff barriers, in terms of both variable and fixed export costs, on trade structure. The relationship between fixed and variable trade costs determines whether international trade emerges. If trade emerges, only variable, but not fixed export costs, influence the trade structure. The empirical results suggest that non-tariff barriers act, in particular, as fixed export costs, as the trade and intra-industry trade emerge in a larger number of industries than prior to the Single European Market programme, while the share of intra-industry trade is unaffected.
Introduction : The ‘new’ international trade literature has not been very innovative with regard to modelling trade barriers, such as transport costs. Almost all contributions focus on ‘iceberg’ transport costs. Recently, the attention of policy makers and international organisations has shifted to non-tariff barriers (NTBs) as sources of hindrance for further trade liberalisation and economic integration between countries. These non-tariff barriers are commonly modelled as a tariff equivalence to ad valorem tariff barriers. In doing so, it may be possible to capture the quantitative effects of these NTBs, though it is generally doubtful as to whether such measures can adequately capture the structural implications on trade and industry. This is due to NTBs consisting of both variable and fixed trade cost components. Except for Venables (1994), such a distinction is completely missing in the theoretical literature. Moreover, to the best of my knowledge, there has been no previous attempt to incorporate both fixed and variable trade costs in order to analyse the trade structure between countries.
Author: Thomas Matha
Source: Stockholm School of Economics
Download URL 2: Visit Now