Asia's Melting Trade Costs

The paper calculates the decline in costs involving merchandise trade between the People's Republic of China (PRC) and India during the period 1980-2008. The gravity-based measure of bilateral trade costs indicates that declining trade costs account for about three-quarters of the increase in PRC-India bilateral trade volume between 1990 and 2008. So far, PRC has accounted for the bulk of trade cost reduction. Considerable room remains for lowering trade costs further, particularly in India, where infrastructure investment is lacking