1 ESTIMATING THE EFFECT OF TRADE COSTS ON SECTORAL TRADE USING “GOOD OLD ” OLS

Draft version to be expanded. Please do not cite without permission of the authors. This paper uses sectoral trade data to compare and quantify the impact that a number of institutional and geographical trade barriers have on bilateral trade flows. Data on distance, tariffs, inland cost of importing and exporting, the number of documents required for trade, time and information technology are used as proxies for trade barriers. A gravity model of trade is estimated using bilateral data for 13 exporters and 167 importers and sectoral data at 4-digit of the SITC classification. Results of the estimation indicate that trade barriers related to the number of days, the number of documents required for trade and technological innovation achievements have a greater impact on trade flows than tariff barriers. This result also holds when the gravity model is estimated for different sectors and for individual countries. According to these findings, trade policy negotiation efforts should be focused on facilitating trade processes and should be in the forefront of multilateral negotiations