barriers in lowering transaction costs and facilitating efficient trade flows. In their seminal work, Finger and Yeats (1976) first establish the equivalency between transportation costs and tariff barriers. Ever since, more empirical studies have examined the effect of various barriers on trade flows. Limao and Venables (2001) show that poor infrastructure accounts for 40 percent of transportation costs in coastal countries and up to 60 percent in landlocked countries, thereby highlighting the importance of infrastructure investment in stimulating export growth. Anderson and Marcouiller (2002) extend the scope of barriers to institutions and establish the relationship between inadequate institutions and low trade flows. Wilson et al. (2005) find that port efficiency, customs administration, regulatory environment, and “e-business” development all have significant trade impacts. If the below-average countries in their sample group improve halfway to the average in all aspects, there would be a US$377 billion gain in trade flows<sup>3</sup> .

In addition to direct monetary outlay, these trade barriers involve costs associated with time delays. Hummels (2001) is the first to argue the time dimension of trade barriers. He classifies the costs into the depreciation of goods and the increased inventory carrying costs. Using US import data, Hummels (2001) shows that one day’s delay reduces the probability that a country will export to the US by 1-1.5 percent. He also discusses how the advent of air transport influences trade growth through the compositional effects. Following his work, the idea that time delays are a barrier to trade and the distinct role of time-sensitive goods has gained growing interest. Nordas et al. (2006) use control of corruption as an instrument for delays in export time and show that delays will reduce the probability and the volume that a country will export to Australia, Japan and the UK in a set of time-sensitive industries, including intermediate inputs, clothing and electronics<sup>4</sup> . Using data on the days it takes to move standardized cargo for exports<sup>5</sup> , Djankov et al. (2008) show that a delay of one day reduces trade by at least one percent or is equivalent to distancing countries by an additional 70 km. They find that one day’s delay reduces a country’s relative exports of time-sensitive to time-insensitive goods by 6 percent<sup>6</sup> . This thereby confirms the compositional effects of time in terms of trade volumes.

Notably, recent studies have begun to investigate firm behavior and find that non-tariff barriers, including the time dimension of these barriers, hinder export performance at the firm level. A large number of empirical studies have shown that only a small portion of firms in each country actually export. Those which do export tend to be larger, more productive, and more skill- and capital-intensive, etc. The process is through self-selection<sup>7</sup> . The selection is driven by the existence of cross-border trade costs. Bernard et al. (2003), Melitz (2003), Yeaple (2005) and Bernard, Redding and Schott (2007), among others, incorporate firm-level heterogeneity to account for the new firm-level facts. All models predict that only the most productive firms can overcome the additional costs associated with exporting and reap the benefits of producing for a larger market. Less productive ones cannot do so and only produce for the domestic market.

> 3 See Ander and van Wincoop (2004) for a survey.

> 4 Nordas et al. (2004) also find that infrastructure quality has a significant trade effect on the automotive sector and the textile and clothing sectors, which they believe to be time-sensitive industries.

> 5 The data has been collected since 2005 and incorporated into the World Bank Doing Business database. Another related work is Hausman et al. (2005) which estimates the trade impact of time uncertainty using the same dataset. 6 Their selection of the manufactures is based on Hummels (2001) and the selection of agriculture goods relies on their average storage life.

> 7See Bernard and Jensen 1999, Aw, Chung, and Roberts 2000, Eaton, Kortum, and Kramarz 2006, and Bernard et al. 2007 for examples.  Also see Tybout 2003 for a survey on the impact of trade liberalization on productivities.

4