The impact of transportation costs on bilateral trade flows in the Asia Nine

Transportation costs are frequently cited as an important determinant of trade costs. The literature has hitherto paid little attention to the endogenous nexus between transportation costs and trade. In this paper, the impact of transportation costs on trade is re-examined by incorporating alternative determinants of transportation costs and trade in a gravity model of bilateral trade in the Asia Nine. It was found that technology and cultural factors tend to facilitate trade and stimulate bilateral trade. These findings are robust to different measures, econometric methods and period coverage.