Friction Costs of Trade in Latin America

Abstract

The barriers that arise in international trade are the costs that countries assume to export and import. These costs are called friction costs. They can be tangible, such as geographic and administrative barriers, and they can be intangible, such as institutional and cultural barriers. In this work, by using an augmented trade cost function, the friction costs of bilateral trade for Latin American countries are estimated, comparing them with the rest of the world during the period 1996-2014, and their effects are determined, as well as the effects of the four integration agreements in the region. Despite their theoretical complexity, tangible barriers have a greater effect on Latin American trade flows than intangible barriers.