# A study on the measurement of inter-provincial trade costs in Yangtze River Delta from the perspective of value-added trade and its promotion effect

## TL;DR

This study measures trade costs between provinces in China's Yangtze River Delta and suggests ways to reduce them for better regional integration.

## Contribution

The paper introduces an improved Novy model with value-added trade data to analyze inter-provincial trade costs in the Yangtze River Delta.

## Key findings

- Inter-provincial trade costs in the Yangtze River Delta have small fluctuations with significant sectoral and bilateral differences.
- The contribution of trade costs to regional trade development is much lower than that of economic growth.
- Reducing trade costs and enhancing digital innovation could promote higher integration in the Yangtze River Delta.

## Abstract

This article uses the Novy model improved by value-added trade data to measure the cost of inter-provincial trade in the Yangtze River Delta and, on this basis, uses the differential decomposition method to explore the promoting effect of inter-provincial trade costs on the development of inter-provincial trade in the Yangtze River Delta. The results show that the inter-provincial trade costs of the provinces/municipalities in the Yangtze River Delta have increased and decreased, but the changes are small, and there are significant differences in sectoral and bilateral trade costs; the results of the differential decomposition show that the contribution of inter-provincial trade costs to inter-provincial trade development in the Yangtze River Delta is much lower than that of economic growth. Therefore, the Yangtze River Delta should deepen the division of labor and cooperation, give full play to the radiation and leading role of Shanghai as an economic center, and accelerate the digital innovation transformation of the service industry to reduce inter-provincial trade costs and achieve a higher level of integrated development of the Yangtze River Delta.