WTO Trade Cost Index

How have global trade costs evolved over time?
Who faces the largest trade costs?
What factors determine trade costs?

The Trade Cost Index has been produced by the Economic Research and Statistics Division (ERSD) to complement other statistics that WTO provides on trade costs, such as average tariffs or the number of non-tariff measures. The aim is to give a sense of the degree of restrictiveness of some of these measures, to measure how trade policy barriers compare to other trade costs, and who bears these costs.

What is it?
The WTO Trade Cost Index uses estimates of bilateral trade costs for 43 economies and 31 sectors between 2000 and 2018 to illustrate the evolution of trade costs over time, the incidence of trade costs across economies and sectors ( Economy-Sector ), for different household income groups, by gender, firms size and skill groups ( Economic Agents ) as well as identify the main factors determining trade costs ( Determinants ).

How is this index built?
Our approach is top down. That is, we start from an indirect estimation of overall trade frictions and we then break these down into specific trade cost components. We infer trade costs by comparing international to domestic trade flows. Hence our measure of trade costs reflects the cost of trading internationally relative to trading domestically.

What's new?
Compared to previous studies, this methodology introduces a number of improvements: First, it allows for sector-specific elasticities of trade flows to trade costs for both goods and services. Second, it allows the estimation of directional trade costs, thus offering more realistic estimates of trade costs. Directional trade costs also allow us to estimate the incidence of trade costs on different groups of consumers and producers. This is a major achievement of this work.

What are the main findings?

  • Global trade costs have declined by 15 per cent between 2000 and 2018.
  • Trade costs for services are higher than trade costs for agricultural goods. Trade costs for manufactured goods are the lowest.
  • Overall trade costs are higher for women, SMEs, and unskilled workers.
  • High-income groups face higher trade costs, given their larger share of consumption in services.
  • Trade policy barriers and regulatory differences are estimated to account for at least 14 per cent of trade costs in all sectors. They include tariff and non-tariff barriers, regulatory differences, as well as other policies covered by trade agreements, such as a lack of investment facilitation or of intellectual property protection.
  • Trade policy barriers are relatively the most important component of trade costs for trade among low income economies.
  • Transport and travel costs together with information and transaction costs explain the largest share of trade costs between high-income economies.


Please refer to the Note produced by the Secretariat for further details about the methodology and the interpretation of the results.

FAQs

Is this index validated?

Our results are based on a new methodology introduced in Egger, Larch, Nigai and Yotov (2020) [ ELNY ]. In addition, ERSD has requested additional three world renown experts in the field to review ELNY's methodology to further validate the methodology.