As tariffs become less common restrictions to international trade, policy makers shift their focus mainly towards less standard sorts of trade barriers, including administrative barriers to trade, the “red tape”. For example, documentation and customs procedures in a typical export transaction of the United States take 18 working days and cost 4.6% of the shipment value. The procedures for a typical Spanish export transaction are 20 days and 7.2%. There is a great variance ranging from 2 days of procedures in Singapore to 2 months in Venezuela. Most importantly, trade costs are paid per shipment. The costs cause frictions of a substantial magnitude (approximately 20% of tariff equivalent) mostly due to inventory carrying expenses.
The paper presents a model of timing of shipments for non-storable goods with per shipment costs. The consumers are assumed to have preferences for consumption on a specific date. Hence, there is a trade-off between rapid shipment of goods to satisfy the demand and waiting to fill the container in order to lower the costs of transportation.
The main result of the model is that per shipment administrative costs make firms send larger-sized shipments less frequently and increase the product price. The authors also provide empirical evidence on US and Spanish export transaction data with 170 and 143 destination countries, respectively, using the data from World Bank’s Doing Business data on administrative costs.
The key findings of the paper are as follows:
exporters who can sell their products in fewer and larger shipments bear less of these costs
both the US and Spain export less and larger-sized shipments to countries with larger administrative costs of importing
there is no evidence on a positive price effect or adjustments in the transport mode or the exported product mix
The paper extends the literature studying less standard barriers in international trade. The results call for simplification and harmonization of international trade procedures.