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Regional Economies of Scale in Transportation and Regional Welfare

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  • Alexandre Skiba

    (Department of Economics, The University of Kansas)

Abstract

A 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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File URL: http://www2.ku.edu/~kuwpaper/2007Papers/200705.pdf
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Bibliographic Info

Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 200705.

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Length: 31 pages
Date of creation: Sep 2007
Date of revision: Sep 2007
Handle: RePEc:kan:wpaper:200705

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Keywords: regional economies of scale; transportation costs; preferential trade agreements; regional welfare;

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References

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  1. Didier Laussel & Raymond Riezman, 2006. "Fixed Transport Costs and International Trade," CESifo Working Paper Series 1764, CESifo Group Munich.
  2. Antonio Spilimbergo & Ernesto Stein, 1996. "The Welfare Implications of Trading Blocs among Countries with Different Endowments," NBER Working Papers 5472, National Bureau of Economic Research, Inc.
  3. David L. Hummels & Georg Schaur, 2013. "Time as a Trade Barrier," American Economic Review, American Economic Association, vol. 103(7), pages 2935-59, December.
  4. Casas, Fran?ois R. & Choi, E. Kwan, 1990. "Transport Innovation and Welfare Under Variable Returns to Scale," Staff General Research Papers 278, Iowa State University, Department of Economics.
  5. Jacek Cukrowski & Manfred M. Fischer, 2000. "Theory of Comparative Advantage: Do Transportation Costs Matter?," Journal of Regional Science, Wiley Blackwell, vol. 40(2), pages 311-322.
  6. Mori, Tomoya & Nishikimi, Koji, 2002. "Economies of transport density and industrial agglomeration," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 167-200, March.
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Cited by:
  1. Joern Kleinert & Julia Spies, 2011. "Endogenous Transport Costs in International Trade," IAW Discussion Papers 74, Institut für Angewandte Wirtschaftsforschung (IAW).
  2. Hummels, David & Lugovskyy, Volodymyr & Skiba, Alexandre, 2009. "The trade reducing effects of market power in international shipping," Journal of Development Economics, Elsevier, vol. 89(1), pages 84-97, May.

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