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Trade costs, 1870–2000

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Jacks, David S. (David Steven), Meissner, Christopher M. (Christopher Michael) and Novy, Dennis. (2008) Trade costs, 1870–2000. American Economic Review, Vol.98 (No.2). pp. 529-534. ISSN 0002-8282

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Abstract

What has driven trade booms and trade busts in the past century and a half? Was it changes in global output or in the costs of international trade? To address this question, we derive a micro-founded measure of aggregate bilateral
trade costs based on a standard model of trade in differentiated goods. These trade costs gauge the difference between observed bilateral trade and frictionless trade in terms of an implied markup on retail prices of foreign goods. Thus, we are able to estimate the combined magnitude of tariffs, transportation costs, and all other macroeconomic frictions that impede international
trade but that are inherently difficult to observe. We use this measure to examine the growth of global trade between 1870 and 1913, its retreat from 1921 to 1939, and its subsequent rise from 1950 to 2000. We find that trade cost
declines explain roughly 55 percent of the pre–World War I trade boom and 33 percent of the post–World War II trade boom, while a precipitous rise in trade costs explains the entire interwar trade bust.

Item Type: Journal Article
Subjects: H Social Sciences > HF Commerce
Divisions: Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH): Globalization -- Economic aspects, International trade -- Econometric models, International trade -- Research, International economic relations -- History -- 19th century, International economic relations -- History -- 20th century
Journal or Publication Title: American Economic Review
Publisher: American Economic Association
ISSN: 0002-8282
Official Date: May 2008
Volume: Vol.98
Number: No.2
Page Range: pp. 529-534
Identification Number: 10.1257/aer.98.2.529
Status: Peer Reviewed
Access rights to Published version: Open Access
Funder: Social Sciences and Humanities Research Council of Canada (SSHRC)
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URI: http://wrap.warwick.ac.uk/id/eprint/3378

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