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Effective Trade Costs and the Current Account
An Empirical Analysis

by Emine Boz, Nan Li, and Hongrui Zhang

Series:Working Paper No. 19/8
ISBN 9781484392171
Code: #WPIEA2019008

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
42 pages
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A view receiving increased support is that the height of trade costs in prime export sectors has a strong effect on current account balances: countries specializing in sectors that face relatively high trade costs, such as services, tend to run current account deficits, and similarly, countries specializing in low trade cost sectors, such as manufacturing, tend to run current account surpluses. To test this view, we first infer comparative advantages and trade costs, by sector, within a large sample of countries for the period 1970–2014. Then we construct effective trade costs—trade costs weighted by sectoral comparative advantage—to gauge the height of a country’s overall trade costs. Results reveal that, although higher effective exporting costs are associated with lower current account balances, their impact is quantitatively limited; furthermore, the effective costs of importing often have no statistically significant effect.
Effective Trade Costs and the Current Account
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 124317 Added: 2019.1.26