The Effect of Trade Costs on the Size of the Trade

Document Type : Research Paper


1 Assistant Research Professor, Jahad-e Daneshgahi, Branch of Tehran University, Iran

2 Ph.D Candidate, Faculty of Economics, University of Tehran, Iran


Many studies indicate that trade costs are large and significant. The question is whether trade costs could explain the size of the trade and shed light on the mystery of missing trade. In this framework, this paper studies 73 developing countries in the period 2005-2011. The results of our panel data analysis signify that “the pecuniary costs of trade” and “the number of necessary documents” affect the size of the trade negatively and significantly. This result is derived after controlling for the size of the economies, the degree of openness and the tariff costs of the trade.