Estimating Distribution Costs with the Eaton-Kortum Model

Economists have mainly relied on input-output tables to calculate domestic trade costs for a relatively small number of developed countries. In this work we use an augmented Eaton-Kortum model to estimate the distribution costs of a group of consumption goods for 60 countries, which include both developing and developed countries. Our results show that developing countries are subject to much higher distribution costs, and that reductions in the distribution costs can result in large welfare gains.