Global trade costs have dropped by 15% between 2000 and 2018. While the trade costs for services are higher than trade costs for agricultural goods, trade costs for manufactured goods are the lowest.
This was disclosed by the Ngozi Okonjo-Iweala-led World Trade Organisation (WTO) via its Twitter handle on Friday.
#DataFriday: The new WTO Trade Cost Index finds that global trade costs have declined by 15 per cent between 2000 and 2018. Further updates will look into capturing the cost of market uncertainty, including from #COVID19. Explore the data: https://t.co/KGNLniPiLS pic.twitter.com/1MYJf7R76h— WTO (@wto) May 14, 2021
Highlights of the Global Trade report
- 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% 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.
According to the WTO, the methodology introduces a number of improvements. First, it allows for sector-specific elasticities of trade flows to trade costs for both goods and services.
The report stated, “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 you need to know about Trade Cost Index
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.
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 the Trade Cost 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,” the report stated.