— The present study aims to utilize the microfounded measure of trade cost derived by Novy (2013) to estimate the relative bilateral trade costs of India with its European Union partners. The advantage of using such a model is that the trade costs can be derived entirely by using observable trade data. The results show that Indian tariff equivalent with its major European Union trading partners have declined on an average by 20 % between 1995-2010, with Malta and Latvia experiencing the greatest decline in their relative bilateral tariffs with India. The study then decomposes the growth of bilateral trade of India with these partners to ascertain whether it is an outcome of increased domestic production or reduction in bilateral and multilateral trade barriers across countries. Novy’s model indicates that decline in relative bilateral trade costs with EU explain 109 % of this trade growth, which is partially offset by decline in multilateral resistance (-35%) terms that has diverted trade away from India and EU to other trading partners primarily in South and South east Asia and North America.
— Trade costs, Novy, India, Europe, EU.
The authors are with IIT Kanpur, India (e-mail: email@example.com).
Cite: Abhishek Gaurav and S. K. Mathur, " Trade Costs of India with European Union and Growth Accounting of Trade," Journal of Economics, Business and Management vol. 4, no. 2, pp. 149-154, 2016.