<mark>The estimated equation is: ln�T</mark> i <mark>�= α + β ∙T T T T t</mark> i <mark>+ γ ∙ITIT TtTI tITI T d bT dIT IT t</mark> i <mark>+ δ ∙ITIT ITtIT T d tT T TItIT IT tT</mark> i <mark>+ φ ∙GTGT T I qITqItq</mark> i <mark>+ ρ ∙T TdI T qI q</mark> i <mark>+ ε</mark> i <mark>. To capture the impact of</mark> **<mark>transportation costs</mark>** <mark>on total trade frictions, the set of variables in T T T T t</mark> i <mark>includes the log of population-weighted distance, and a binary variable indicating if both trading partners are landlocked.</mark><sup>26</sup> <mark>To capture the impact of</mark> **<mark>infrastructure and border costs</mark>** <mark>, ITIT TtTI ITI T d bT dIT IT tT</mark> i <mark>includes the average quality of trade- and transport-related infrastructure,</mark><sup>27</sup> <mark>the average quality of port infrastructure,</mark><sup>28</sup> <mark>the average share of population using the Internet,</mark><sup>29</sup> <mark>the average lead time to import and the average Trading across Borders index.</mark><sup>30</sup> <mark>To capture the impact of</mark> **<mark>information and transaction costs</mark>** <mark>, the set of variables in ITIT ITtIT T d tT T TItIT IT tT</mark> i <mark>includes having common ethnic language, having common religion, previously having a common coloniser, previously being in a colonial relationship, previously being the same country,</mark><sup>31</sup> <mark>the average bilateral stock of migrants in 2013,</mark><sup>32</sup> <mark>the difference in rule of law,</mark><sup>33</sup> <mark>the difference in GDP per capita and the average GDP per capita. To capture</mark> **<mark>trade policy barriers and regulatory measures</mark>** <mark>, the set of variables T TdI T qI q</mark> i <mark>includes being in a free trade agreement and being part of the European Union.</mark><sup>34</sup> <mark>They also include the difference in regulatory quality</mark><sup>35</sup> <mark>and, where applicable/available, the OECD's and World Bank's STRIs and OECD's STRI heterogeneity.</mark>

**<mark>Governance Quality</mark>**<sup>**36**</sup> <mark>includes the average rule of law and the average regulatory quality.</mark>

<mark>The regressions are run on data from 2017 and include 30 countries, which is the largest sample for which all variables are available. The estimation is based on within-2-digit-sector variation. The R-squared decomposition is computed using Shapley and Owen values.</mark>

**<mark>Source</mark>** <mark>: WTO (2019),</mark> _<mark>World Trade Report 2019: Services – The New Trade Frontier</mark>_ <mark>, Geneva: World Trade Organization.</mark>

> 26 Both variables come from the Centre d’études prospectives et d’informations internationales (CEPII).

> 27 World Bank Group.

> 28 World Economic Forum.

> 29 International Telecommunications Union.

> 30 World Bank Group.

> 31  Centre d’études prospectives et d’informations internationales (CEPII).

> 32 CESIfo.

> 33 Worldwide Governance Indicators (WGI).

> 34 Both variables are taken from the Regional Trade Agreements Database from Egger and Larch (2008).

> 35 Worldwide Governance Indicators (WGI), World Bank Group.

> 36 Worldwide Governance Indicators (WGI), World Bank Group.

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