Economics
Trade Cost
Trade cost refers to the expenses incurred when buying, selling, or exchanging goods and services. It encompasses various factors such as transportation, tariffs, taxes, and administrative fees. These costs can impact the overall profitability of trade transactions and influence the volume and patterns of international trade.
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4 Key excerpts on "Trade Cost"
No longer available |Learn moreImpact of Trade Facilitation on Export Competitiveness
A Regional Perspective
- (Author)
- 2010(Publication Date)
- United Nations Publications(Publisher)
19 ENHANCING ASIA’S TRADE: TRANSPORT COSTS MATTER By Prabir De* Introduction Direct evidence on border costs shows that tariff barriers are now low in most countries. On average (trade-weighted), they are less than 5 per cent for rich countries and, with a few exceptions, between 10 and 20 per cent for developing countries (WTO 2006a, and WTO and ITC 2007). While the world has experienced a drastic fall in tariffs over the last two decades, several barriers that penalize trade remain. Some are referred to as “soft” barriers, others as hard barriers. Soft barriers are addressed through trade and business facilitation measures, and “hard” barriers, which are considered to comprise physical or infrastructure barriers, are addressed through transport facilitation measures. The costs arising from these two broad types of trade barriers can be clubbed together and referred to collectively as Trade Costs. Trade Costs are often cited as an important determinant of trade volume. High Trade Costs create obstacles to trade and impede the realization of gains from trade liberalization. 1 Most studies on Trade Costs show that integration is the result of reduced costs of transportation in particular and other improved services in general. Supply constraints are the primary factors that have limited the capacity of many developing and least developed countries to exploit the trade opportunities arising from trade liberalization. An optimal gain from trade, therefore, depends not only on tariff liberalization but also on the quality of infrastructure and related services associated with cross-border trading. Trade Costs have large welfare implications. Current policy-related costs are often valued at more than 10 per cent of national income (Anderson and van Wincoop 2004). Obstfeld and Rogoff (2000) commented that all the major puzzles of international macroeconomics hang on Trade Costs.
eBook - PDFEconometric Analysis of European Food and Agricultural Trade in a Liberalized and Integrating Global Economy
Insights from Gravity, PTM and Survival Models
- (Author)
- 2017(Publication Date)
- Cuvillier Verlag(Publisher)
The difference between the price in the destination country ( p d ) and the price in the origin country ( p o ) are Trade Costs. Thus, Trade Costs drive a wedge between the price in the origin and destination country and consequently reduce the traded quantity. Trade Costs lead to a welfare loss in the amount of areas a in the exporting country and b in the importing country. The size of the losses, of course, depends on the elasticities of supply and demand and the ratio of the elasticities in the exporting and exporting country. In the case where Trade Costs are tariffs, the state generates revenues in the amount of q 1 * TC . However, in this case the whole society is usually also worse off compared to a situation without barriers. Dieses Werk ist copyrightgeschützt und darf in keiner Form vervielfältigt werden noch an Dritte weitergegeben werden. Es g ilt nur für den persönlichen Gebrauch. The Gravity Model of International Trade 31 Figure 2-1: The effect of Trade Costs in a market diagram Source: Own presentation based on Dreyer (2012). Anderson and van Wincoop (2004) provide a comprehensive overview on Trade Costs and the related economic literature. The authors give some striking definitions (pp. 691-692). “Trade Costs, broadly defined, include all costs incurred in getting a good to a final user other than the marginal cost of producing the good itself: transportation costs (both freight costs and time costs), policy barriers (tariffs and non-tariff barriers), information costs, contract enforcement costs, costs associated with the use of different currencies, legal and regulatory costs, and local distribution costs (wholesale and retail). Trade Costs are reported in terms of their ad-valorem tax equivalent”. Further, they define transport cost as follows (p.703). “Direct transport costs include freight charges and insurance which is customarily added to the freight charge.
No longer available |Learn moreAssessing Regional Integration in Africa IV
Enhancing Intra-African Trade
- United Nations Economic Commission for Africa(Author)
- 2010(Publication Date)
- United Nations Publications(Publisher)
As figure 6.1 shows, the estimated Trade Costs represent the total for three components: a 21 per cent ad valorem equivalent for transportation costs, 44 per cent for border-related trade barriers and 55 per cent for retail and wholesale distribution costs. 13 It should be noted that Trade Costs vary in magnitude and pattern across countries and regions, as well as across sectors and goods. Anderson and Van Wincoop (2004) also note that in developed countries, the costs of trading a good, including international Trade Costs and domestic distribution costs, can be even higher than the cost of production. Figure 6.1 Estimated Trade Cost in industrialized countries 21% Transport costs - Freight costs - Time value Border related trade barriers - Policy - Language - Currency - Information - Security Note: The breakdown of costs is expressed in ad-valorem equivalent terms: 1.7 = 1.21 * 1.44 * 1.55 - 1. Retail and wholesale distribution cost Productions costs 44% 55% 100% Source: Portugal-Perez and Wilson (2009). 13 The cost components are expressed in ad valorem equivalent terms: 1.7 = 1.21*1.44*1.55 – 1. The first two components account for total international Trade Costs that are about 74 per cent (= 0.74=1.21*1.44 - 1). 206 Assessing Regional Integration in Africa (ARIA IV) Figure 6.2 Transport costs (freight costs as a percentage of total import value) Note : The transport cost rate is the ratio of transport costs as a percentage of the value of imports. Source : Calculations by ECA ECA research indicates that the ratio of Trade Costs to production costs would be greater for African countries than for developed ones, because African producers face consider-ably higher transport costs and trade facilitation challenges than do developed coun-tries. 14 Figure 6.2 shows that Africa in general, and sub-Saharan Africa in particular, have the highest cost rates in the world.
eBook - PDF- Steven Landsburg(Author)
- 2013(Publication Date)
- Cengage Learning EMEA(Publisher)
2.2 Costs, Efficiency, and Gains from Trade In Section 2.1 we discussed the concept of price. In this section we will discuss the related concept of cost. Once we understand what costs are, we will be able to see how everyone can benefit when activities are carried out at the lowest possible cost. This will provide us with a powerful example of the gains from trade. Costs and Efficiency When you decide to spend an evening at the opera, you must forgo a number of other things. First, you pay a price, say $50, for the ticket. Of course, the money itself is valuable only insofar as you could have used it to buy something else. That “ some-thing else ”— perhaps ten movie tickets or five pizzas — represents some of the cost of going to the opera. 32 CHAPTER 2 Copyright 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. The ticket price is only part of the cost, because your evening at the opera entails many other sacrifices as well. There is the gasoline that you use to drive to the opera. There is also the time spent actually attending the performance. That time could have been spent doing something else, and the value of that something else is also part of the cost of going to the opera. In summary, a cost is a forgone opportunity. The cost of engaging in an activity is the totality of all the opportunities that the activity requires you to forgo. You may have heard the term opportunity cost used to describe such costs as the time sacrificed in attending the opera. This term is quite misleading because it implies that an “ opportunity cost ” is one of several types of cost.
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