Barriers to International Trade- Non-Tariff Barriers and Infrastructure on Freight Transportation
Average applied tariffs on industrial products have declined from 15.5 per cent in 1990 to 7.9 per cent in 2003. Yet, the volume of international trade is still less than one would expect from observed differences in factor endowments, tastes and technology between countries (Trefler, 1995). A possible explanation of the missing trade is non-tariff barriers to trade, including transport costs and other costs related to searching for international suppliers or customers, entering into contracts and shipping the goods or services from the domestic producer to the foreign customer. These transaction costs have several …show more content…
Uncertainty is an important dimension of trade cost not only in terms of uncertainty about when a shipment is delivered but also in what conditions it arrives at its destination. The uncertainty about to which extent the quality and the quantity of the shipment upon arrival correspond to the one loaded at departure is part of the cost of transport and depends on the quality of infrastructure. A poor quality of infrastructure is likely to be associated to a higher risk of damaging the cargo and therefore higher losses and insurance costs.
A forth dimension of transaction costs is the opportunity cost of lack of access to a good transport or telecommunication service. For example, large trucks would bypass villages whose roads cannot carry them. Large ships would bypass harbours with inadequate facilities.
Previous studies that looked at the relationship between trade and infrastructure have found a positive and significant impact of quality of infrastructure on