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Abstract
International trade costs are known to be large but difficult to measure. Using a microfounded
gravity equation based on the framework in Novy (2011), this study estimates an
indirect measure of multilateral trade costs for tradable goods in agriculture. Using production
and bilateral trade data along with plausible values of the elasticity of substitution, we find that
median global agricultural trade costs were 285 percent in 1965, on an ad-valorem equivalent
basis, before declining dramatically to a 118 percent ad-valorem equivalent in 2010. There is
considerable variation in agricultural trade costs, bilaterally, and within various policy
arrangements such as regional integration and the GATT/WTO. Statistical analysis of the
determinants of agricultural trade costs largely confirms this variation: bilateral and regional
free trade initiatives lower international trade costs by 36 percent on average, whereas
GATT/WTO membership lowers trade costs by nearly 20 percent.