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On the (Mis)Measurement of Transport Costs in Econometric Modelling

Author

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  • Mihalis Chasomeris

    (Graduate School of Business, University of KwaZulu-Natal. Private Bag X54001, Durban, 4000, South Africa. Telephone: 031 260 2575 (Office); Fax: 031 2024193; e-mail: chasomerisml@ukzn.ac.za or chasomeris@gmail.com)

Abstract

Several world institutions and researchers use import cif/fob ratios to measure a country’s international transport costs. The purpose of this paper is to investigate the (mis)measurement of transport costs in econometric modelling. The paper discusses the econometric assumptions that are used to justify the (mis)use of country cif/fob ratios to measure international transport costs. Several econometric studies use a country’s cif/fob ratios as exogenous explanatory variables, whereas this study shows that the ratio may indeed be an endogenous variable, hence generating spurious empirical results. In this paper, the relationship between annual cif/fob ratios and compositions of imports are examined via correlation analysis. The findings show that where the quality of the data is reliable, a country’s composition of imports has a significant effect on that country’s cif/fob ratios; hence researchers cannot use the ratio as a dependable measure of direct shipping costs. Researchers should be wary of substituting country cif/fob ratios for direct measures of transport costs. JEL Code: F10

Suggested Citation

  • Mihalis Chasomeris, 2009. "On the (Mis)Measurement of Transport Costs in Econometric Modelling," Journal of Interdisciplinary Economics, , vol. 21(4), pages 449-463, November.
    • Handle: RePEc:sae:jinter:v:21:y:2009:i:4:p:449-463
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    Keywords

    international transport costs; import cif/fob ratios;

    JEL classification:

    • F10 - International Economics - - Trade - - - General

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