Infrastructure quality and trade liberalization.

• The trade gravity model is modified to incorporate infrastructure quality differences between economies, and this points to asymmetric bilateral trade costs. • Asymmetric bilateral trade costs then impact bilateral trade balance positively (negatively) for economies with higher (lower) infrastructure quality. Post bilateral trade liberalization, the impact of infrastructure quality on bilateral trade balance is further accentuated. These effects are not detected consistently against potential confounders. • The research shows how infrastructure quality can affect trade outcomes and underscores the importance of developing infrastructure as economies liberalize to trade. It is difficult to establish the impact infrastructure has on trade balances due to confounding factors. Our empirical approach leverages on episodes of trade liberalization, interacting such episodes with infrastructure. Providing a simple extension to the gravity model, we find that infrastructure quality differences between trade partners result in trade imbalances, which liberalization then accentuates. For robustness checks, we interact the liberalization indicator against other confounding variables and do not find such consistent effects. We conclude that lack of quality infrastructure in developing economies contributes to larger trade deficits, and infrastructure development should be supported alongside trade liberalization. [ABSTRACT FROM AUTHOR]