Regional Economies of Scale in Transportation and Regional Welfare
AbstractA discriminatory tariff can be welfare superior to free trade in the presence of regional economies of scale. This is because a tariff on non-regional trade concentrates trade within a region, lowering the cost of transportation, so that the gains from economies of scale can theoretically offset the losses from the tariff. To complement the theoretical point I estimate the relation between transportation cost and regional volume of trade. The estimates suggest that a 10% increase in the volume of trade brings about 2.5% reduction in transportation cost in the long run.
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Bibliographic InfoPaper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 200705.
Length: 31 pages
Date of creation: Sep 2007
Date of revision: Sep 2007
regional economies of scale; transportation costs; preferential trade agreements; regional welfare;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-24 (All new papers)
- NEP-GEO-2007-11-24 (Economic Geography)
- NEP-INT-2007-11-24 (International Trade)
- NEP-URE-2007-11-24 (Urban & Real Estate Economics)
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