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Publications
Publications
  • 2018
  • Mimeo

Foreign and Domestic Trade Costs, Product Variety, and the Standard of Living Across Countries

By: Alberto Cavallo, Robert C. Feenstra and Robert Inklaar
  • Format:Print
  • | Language:English
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Abstract

We extend the analysis of Arkolakis, Costinot and Rodríguez-Clare (AER, 2012) to allow for differences in domestic trade costs in addition to foreign trade costs. The domestic trade costs are measured by local transportation charges and wholesaling and retailing margins. By allowing for differences in domestic trade costs, as well as in country size, productivity and in fixed costs, we are able to model both the welfare change between two equilibria and the welfare difference between two countries. We find that the extended ACR formula depends on: (a) the share of expenditure on domestic goods (reflecting in part foreign trade costs); (b) domestic trade costs; (c) the extent of product variety available to consumers. We measure the extent to which differences in the cost of living between countries are explained by these terms. We find that domestic trade costs are of comparable importance to foreign trade costs and that differences in product variety are notably more important than both of these.

Keywords

Economics; Trade; Cost

Citation

Cavallo, Alberto, Robert C. Feenstra, and Robert Inklaar. "Foreign and Domestic Trade Costs, Product Variety, and the Standard of Living Across Countries." 2018. Mimeo.
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About The Author

Alberto F. Cavallo

Business, Government and the International Economy
→More Publications

More from the Authors

    • March, 2021
    • American Economic Review: Insights

    Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy

    By: Alberto Cavallo, Gita Gopinath, Brent Neiman and Jenny Tang
    • March 2021
    • Review of Economics and Statistics

    Targeted Price Controls on Supermarket Products

    By: Alberto Cavallo and Diego Aparicio
    • February 2021
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    The Coronavirus (COVID-19) Pandemic and the Global Economy (B)

    By: Alberto Cavallo and Christian Godwin
More from the Authors
  • Tariff Passthrough at the Border and at the Store: Evidence from U.S. Trade Policy By: Alberto Cavallo, Gita Gopinath, Brent Neiman and Jenny Tang
  • Targeted Price Controls on Supermarket Products By: Alberto Cavallo and Diego Aparicio
  • The Coronavirus (COVID-19) Pandemic and the Global Economy (B) By: Alberto Cavallo and Christian Godwin
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