SMU SOE Seminar (Oct 13, 2017): Trade Facilitation with Endogenous Border Costs

Borders impose high costs on trade flows. Traditionally research and policy focus on tariffs and quotas. Our model generalizes existing time cost estimates to evaluate and estimate processing related border costs. We employ highly detailed import-processing data from Peru to provide evidence for our model and quantify processing related border costs. On average, we estimate a 21 percent ad-valorem tariff-equivalent in border processing costs. A policy example shows that if the WTO Agreement on Trade Facilitation, a world-wide policy initiative, eliminates the time to physically inspect documents, then this cost decreases to about 12 percent. However, the distribution of border processing costs across products implies political economy considerations related to trade facilitation. Heterogeneity and sources of border processing costs reveal tradeoffs in technology and especially high border costs for new importers. This informs recent literature on sources of firm heterogeneity, the formation of new relationships in international trade and policy negotiation. Estimates based on aggregate data or more restrictive cost models do not fully capture these margins important for trade theory and policy.