True Costs in International Trade of Goods

Numerous negative external effects are associated with the transport of goods. Due to market failure, too many goods are transported over long distances. Internalisation measures, such as the implementation of regulations, bans, as well as taxes, levies and tradable permits, aim to address external costs. In some areas, however, such interventions do not exist. An extensive literature review shows that the external costs associated with the transport of goods are only partially internalised and thus have an impact on prices. Applying a quantitative model this study investigates a scenario analysis to internalise the external costs of trade activities. The results show that the implementation of truth in transport costs in extra-EU trade relations could be associated with a slight increase in real GDP and employment in the EU, provided that the revenues of these trade mark-ups are recycled back into the economy. Policy recommendations for establishing truth in transport costs in international trade are identified in the analysis.