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Transportation, freight rates, and economic geography

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  • BEHRENS, Kristian
  • PICARD, Pierre M.

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

We investigate the role of the transport sector in structuring the location of economic activity within two-region economic geography models of the footloose capital and core-periphery types. In our setting, competitive carriers offer transport services for shipping manufactured goods across regions and freight rates are determined endogenously to clear transport markets. Each carrier commits to the maximum capacity for a round-trip and thus faces a simple logistic problem: there are costs associated with 'returning empty', and those costs increase the freight rates charged to manufacturing firms. Since demand for transport services depends on the spatial distribution of economic activity, agglomeration in one region raises freight rates to serve foreign markets, thus generating an additional dispersion force. We show that a more equal equilibrium distribution of firms prevails when freight rates are endogenously determined than when they are exogenous and that multiple equilibria (including partial agglomeration) usually coexist.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008040.

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Date of creation: 01 Jul 2008
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Handle: RePEc:cor:louvco:2008040

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Keywords: transport sector; freight rates; economic geography; trade.;

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Cited by:
  1. Duranton, Gilles & Morrow, Peter & Turner, Matthew A, 2013. "Roads and Trade: Evidence from the US," CEPR Discussion Papers 9393, C.E.P.R. Discussion Papers.
  2. Gabor Bekes & Lionel Fontagne & Murakozy Balazs & Vincent Vicard, 2012. "How frequently firms export? Evidence from France," IEHAS Discussion Papers 1217, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Békès, G. & Fontagné, L. & Murakozy, B. & Vicard, V., 2014. "Shipment frequency of exporters and demand uncertainty," Working papers 479, Banque de France.
  4. Noriaki Matsushima & Kazuhiro Takauchi, 2013. "Port Privatization in an International Oligopoly," ISER Discussion Paper 0864, Institute of Social and Economic Research, Osaka University.
  5. Forslid, Rikard & Okubo, Toshihiro, 2013. "Which Firms are Left in the Periphery? - Spatial Sorting of Heterogeneous Firms with Scale Economies in Transportation," Research Papers in Economics 2013:9, Stockholm University, Department of Economics.
  6. Tanaka, Kiyoyasu & Tsubota, Kenmei, 2014. "Directional imbalance of freight rates : evidence from Japanese inter-prefectural data," IDE Discussion Papers 441, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  7. Andreou, Panayiotis C. & Louca, Christodoulos & Panayides, Photis M., 2012. "Valuation effects of mergers and acquisitions in freight transportation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(6), pages 1221-1234.
  8. Panayides, Photis M. & Lambertides, Neophytos & Cullinane, Kevin, 2013. "Liquidity risk premium and asset pricing in US water transportation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 52(C), pages 3-15.
  9. Joern Kleinert & Julia Spies, 2011. "Endogenous Transport Costs in International Trade," IAW Discussion Papers 74, Institut für Angewandte Wirtschaftsforschung (IAW).

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