The goal of this paper is two-fold. First, we review recent literature and indicators on trade costs relevant to Africa. We classify trade costs into four broad groups: borderrelated costs, transport costs, costs related to behind-the-border barriers, and the costs of compliance with rules of origin that are specific to preferential trade. Our review does not intend to be comprehensive. We primarily focus on recent research presenting evidence of the impact of trade costs on African countries and highlight new data addressing the sources of trade costs. The paper presents the limited evidence on direct costs related to trade transactions.<sup>4</sup> We also present data on indirect measures of trade costs, which are primarily inferred from case studies and empirical work in gravity models. Indeed, the lack of official statistics on trade costs in many countries around the world is a major limitation for empirical research.<sup>5</sup> It is important to note when considering these data that trade costs and facilitation can be either primarily tied to trade friction, such as resources necessary in getting a product to the final user, or costs associated with government regulation, which can be addressed through policy reform.

Second, building on data and gravity model estimates by Hoekman and Nicita (2008), we estimate ad-valorem equivalents of a counterfactual improvement in trade-cost indicators for several African countries. As data on African countries is generally sparse, the advantage of Hoekman and Nicita’s specification is the incorporation of trade cost variables with good coverage of African countries. This includes new data in the Logistics Performance Index (LPI) (World Bank, 2007). and trade indicators constructed by Doing Business (World Bank, 2008). Moreover, the model includes the ad-valorem trade restrictiveness indices estimated by Kee, Olarreaga, and Nicita (2008). These provide a theoretically sound way of summarizing—in a single figure—the restrictiveness of tariff and non-tariff barriers which can be disparate across tariff lines.

Drawing on gravity estimates, we provide an illustrative assessment of the relative importance of trade costs captured by these estimators and proceed in three steps. First, we build on Hoekman and Nicita’s proposed gravity model to obtain gravity estimates and analyze the sensitivity of the estimated coefficients to the inclusion of different indicators as well as to the use of several estimation techniques. Second, using gravity estimates, we compute the “ad-valorem” tariff cut that would be equivalent to reducing the trade costs associated with moving a standardized container (as defined and reported by Doing Business) halfway to the value of Mauritius, the top performer in Africa. Finally, we compare these illustrative ad-valorem equivalents across African countries.

The paper is organized as follows. Section 2 presents the definition of trade costs and discusses some orders of magnitude. In Section 3, we review recent research on four dimensions of trade costs: border-related costs, transport costs, costs related to behindthe-border issues, and the costs of compliance with rules of origin that are specific to preferential trade. In Section 4, we use gravity estimates to compute illustrative ad-

> 4 For instance, an early study by Yeats (1990a) documents the poor quality of UN statistics on African trade.

> 5 Only the United States and New Zealand officially publish shipping and transport cost data based on declarations from the importers for fiscal purposes.

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