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The role of direct flights in trade costs

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  • Yilmazkuday, Demet

    (Florida International University)

  • Yilmazkuday, Hakan

    (Florida International University)

Abstract

The role of direct flights in trade costs is investigated by introducing and using a micro price data set on 49 goods across 433 international cities covering 114 countries. It is shown that having at least one direct flight reduces trade costs by about 1,400 miles in distance equivalent terms, while an international border increases trade costs by about 14,907 miles; hence, the positive effects of having at least one direct flight between any two cities can compensate for about 10% of the negative effects of an average international border. Trade costs also decrease with the number of direct flights: on average, one direct flight reduces trade costs by about 305 miles in distance equivalent terms, which corresponds to 7% of the average distance and can compensate for about 2% of the negative effects of an average international border. The results are shown to be robust to alternative empirical strategies.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 179.

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Length: 32 pages
Date of creation: 13 May 2014
Date of revision:
Handle: RePEc:fip:feddgw:179

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Keywords: economic integration; foreign exchange;

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  1. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
  2. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
  3. Engel, C. & Rogers, J.H., 1995. "How Wide is the Border?," Papers 4-95-16, Pennsylvania State - Department of Economics.
  4. Parsley, David C. & Wei, Shang-Jin, 2001. "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Elsevier, vol. 55(1), pages 87-105, October.
  5. David Hummels & Georg Schaur, 2012. "Time as a Trade Barrier," NBER Working Papers 17758, National Bureau of Economic Research, Inc.
  6. Micco, Alejandro & Serebrisky, Tomas, 2006. "Competition regimes and air transport costs: The effects of open skies agreements," Journal of International Economics, Elsevier, vol. 70(1), pages 25-51, September.
  7. Cristea, Anca D., 2011. "Buyer-Seller Relationships in International Trade: Evidence from U.S. States' Exports and Business-Class Travel," MPRA Paper 30347, University Library of Munich, Germany.
  8. Fernando Borraz & Alberto Cavallo & Roberto Rigobon & Leandro Zipitría, 2012. "Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints," NBER Working Papers 18122, National Bureau of Economic Research, Inc.
  9. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
  10. Germà Bel & Xavier Fageda, 2005. "Getting there fast: Globalization, intercontinental flights and location of headquarters," Urban/Regional 0511008, EconWPA.
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