Falling trade costs, therefore, affect important firm-level decisions. In particular, reduced trade costs will induce more firms to become exporters, and will stimulate the growth of existing exporters. Roberts and Tybout (1997) test for the presence of sunk costs, while Bernard and Jensen (2004) test for the possible existence of entry costs. Both papers find entry costs to be significant in explaining firms' export decisions. Dollar et al. (2006) draw on firm-level surveys from eight countries and find that firms in countries with shorter time for customs clearance have a higher probability of exporting to foreign markets. Clarke (2005) and Yoshino (2008) investigate the issues of African countries using firm-level surveys<sup>8</sup> . They both find that exporters in countries with more efficient customs administration tend to send more products abroad. Yoshino (2008) also shows that more efficient customs administration is associated with greater export market diversification.

# **III. Estimation Strategy**

This paper extends existing empirical analyses on time as a barrier to trade by focusing on the compositional effects. The export response to time delays should differ across industries. The ability to move goods faster may, therefore, determine a country’s relative export growth of time-sensitive to time-insensitive goods, i.e. comparative advantage. To the best of our knowledge, it has not received sufficient attention previously. Focusing on compositional effect also allows us to use a Difference-in-Difference approach that is less prone to the endogeneity problem associated with more traditional cross-country analyses.

Time is an important barrier to trade. There are two types of costs imposed by shipping time: inventory-holding and depreciation. Inventory costs consist of the capital costs of the goods while in transit and the need to hold buffer-stock inventory at final destinations to absorb demand volatility. Depreciation costs refer to any case that a newer product is preferable to an older one, including literal spoilage and more generally, goods for which demand is hard to predict<sup>9</sup> . The existence of time delays has shown to be a significant impediment to country exports (e.g. Hummels 2001, Djankov et al. 2008).

In this environment, time-sensitive industries are especially vulnerable. Djankov et al. (2008) illustrate that delays in shipping time reduce a country’s relative exports of time-sensitive to time-insensitive goods. The development of technology and manage techniques has changed the nature of modern production and made timeliness the key to success in many industries. One example is industries that have adopted just-in-time practices. Just-in-time practices imply that manufacturers have a minimum inventory of intermediates. Chances are that when the delivery of one intermediate is delayed, the entire production process could stop. Another example is industries that have volatile demand; for instance, personal computers. Standardized computers do not appeal to many consumers who are willing to pay extra for a customized model. Many computer manufacturers simply obtain desired specifications first and then build and deliver customized models over-night.

> 8 The surveys used by Dollar et al. (2006), Clarke (2005) and Yoshino (2008)  are the World Bank Enterprise Surveys, which are collected to prepare Investment Climate Assessments and also known as Investment Climate Surveys.

> 9 See Hummels (2001) for a detailed explanation.

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