A Gravity Model of Barriers to Trade in New Zealand (WP 14/05)

Abstract

There are many costs associated with international trade. These costs act as barriers to trade and affect the level of trade. This paper first provides a brief discussion of the state-of-the-art methods used to measure trade costs and to quantify their impact on trade. It then empirically investigates the role of a range of barriers to New Zealand's trade within the framework of a gravity model of trade. The analysis covers New Zealand's trade with around 200 trade partners over the years 2001 to 2006, and includes tariffs and a number of non-trade policy factors such as property rights, financial market sophistication, corruption, and a range of measures related to infrastructure quality. The empirical evidence both in the literature and in this study highlights the growing importance of non-policy induced barriers to trade.

Acknowledgements

The authors wish to thank our referees Gary Hawke, John Bryant, Qing Yang and Richard Downing for helpful comments and suggestions.  Thanks are also due to our editor, John Creedy.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury or the New Zealand Government.  The New Zealand Treasury and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.