The Impact of Transportation Costs and Trade Barriers on International Trade Flows
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Because trade is seen as welfare improving for society, governments have long employed their policy-making powers to increase trade levels. In recent years, no strategy has been more employed by policy makers than free trade agreements. As free trade agreements become more popular, world tariff levels rapidly approach zero. Given this, policy makers must look to other methods to encourage trade. I examine how non-tariff trade barriers impact international trade levels. By better understanding these trade barriers, policy makers will be able to make more informed decisions. To better understand non-tariff trade barriers, I begin with well-known impediments to trade, including the border effect, transportation costs, and the trade creation and trade diversion effects of regional trade agreements. I then demonstrate and examine heterogeneity in these trade costs. In Chapter II I examine the often-studied border effect, the notion that regions trade more intra-nationally than internationally. I demonstrate that smaller regions are less attractive to foreign trading partners than their larger counterparts. Fixed costs of crossing an international border, as well as more effective marketing methods, mean economically larger U.S. states or Canadian provinces see a smaller border effect. In Chapter III I look at how transportation costs incurred within the exporting country impact trade levels. Using a unique instrumental variable strategy, I show that the cost of getting a good to a port is a significant hindrance to trade. Finally, in Chapter IV I show that the benefits of joining the European Union are heterogeneous across countries. This means that while the E.U. may be beneficial on average, it may not be beneficial for individual countries.