IDEAS home Printed from https://ideas.repec.org/p/red/sed012/1095.html
   My bibliography  Save this paper

A Model of Trade with Endogenous Transportation Costs

Author

Listed:
  • Scott Petty

    (University of Minnesota)

  • Jose Asturias

    (University of Minnesota)

Abstract

Fragmented connectivity is a reality of the transportation industry. Two ports need not be connected by a shipping line--in fact, the vast majority of ports in the world are not connected by a line. If this is the case, then any shipment must be off-loaded through at least one additional port adding expenses to the trip. In this paper, we examine the effect connectivity has on trade. We build a model of the transportation industry within a standard Melitz framework. To enter the transportation industry, firms must pay a fixed cost. Transportation firms also enjoy increasing returns to scale. Because of the fixed cost, small markets are less likely to be connected by a shipping line to another country. In addition, small markets that are connected will pay more because of market power of transportation firms and the inability to take advantage of economies of scale. In this model, trade volumes and transportation prices are jointly determined. The data set that we assembled on the route structure of the transportation industry and freight prices suggests that connectivity can significantly affect both the freight price and trade volume. We propose an estimation strategy using the data that we collected for the parameters of the transportation industry.

Suggested Citation

  • Scott Petty & Jose Asturias, 2012. "A Model of Trade with Endogenous Transportation Costs," 2012 Meeting Papers 1095, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:1095
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2012/paper_1095.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    2. Treb Allen, 2014. "Information Frictions in Trade," Econometrica, Econometric Society, vol. 82, pages 2041-2083, November.
    3. Berthelon, Matias & Freund, Caroline, 2008. "On the conservation of distance in international trade," Journal of International Economics, Elsevier, vol. 75(2), pages 310-320, July.
    4. Clark, Ximena & Dollar, David & Micco, Alejandro, 2004. "Port efficiency, maritime transport costs, and bilateral trade," Journal of Development Economics, Elsevier, vol. 75(2), pages 417-450, December.
    5. David S. Jacks & Christopher M. Meissner & Dennis Novy, 2008. "Trade Costs, 1870-2000," American Economic Review, American Economic Association, vol. 98(2), pages 529-534, May.
    6. Jean-François Brun & Céline Carrère & Patrick Guillaumont & Jaime de Melo, 2015. "Has Distance Died? Evidence from a Panel Gravity Model," World Scientific Book Chapters, in: Developing Countries in the World Economy, chapter 13, pages 299-320, World Scientific Publishing Co. Pte. Ltd..
    7. 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.
    8. 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.
    9. Mauricio Mesquita Moreira & Christian Volpe Martincus & Juan S. Blyde, 2008. "Unclogging the Arteries: The Impact of Transport Costs on Latin American and Caribbean Trade," IDB Publications (Books), Inter-American Development Bank, number 13138, February.
    10. 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.
    11. Bougheas, Spiros & Demetriades, Panicos O. & Morgenroth, Edgar L. W., 1999. "Infrastructure, transport costs and trade," Journal of International Economics, Elsevier, vol. 47(1), pages 169-189, February.
    12. Francois, Joseph F & Wooton, Ian, 2001. "Trade in International Transport Services: The Role of Competition," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 249-261, May.
    13. Michael E. Waugh, 2010. "International Trade and Income Differences," American Economic Review, American Economic Association, vol. 100(5), pages 2093-2124, December.
    14. David Hummels & Volodymyr Lugovskyy, 2006. "Are Matched Partner Trade Statistics a Usable Measure of Transportation Costs?," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 69-86, February.
    15. Wilmsmeier, Gordon & Hoffmann, Jan & Sanchez, Ricardo J., 2006. "The Impact of Port Characteristics on International Maritime Transport Costs," Research in Transportation Economics, Elsevier, vol. 16(1), pages 117-140, January.
    16. repec:idb:brikps:13138 is not listed on IDEAS
    17. Bruce A. Blonigen & Wesley Wilson, 2006. "New Measures of Port Efficiency Using International Trade Data," NBER Working Papers 12052, National Bureau of Economic Research, Inc.
    18. Mesquita Moreira, Mauricio & Volpe Martincus, Christian & Blyde, Juan S., 2008. "Unclogging the Arteries: The Impact of Transport Costs on Latin American and Caribbean Trade," IDB Publications (Books), Inter-American Development Bank, number 264.
    19. John S. Wilson & Catherine L. Mann & Tsunehiro Otsuki, 2003. "Trade Facilitation and Economic Development: A New Approach to Quantifying the Impact," The World Bank Economic Review, World Bank, vol. 17(3), pages 367-389, December.
    20. Joseph F. Francois & Ian Wooton, 2001. "Trade in International Transport Services: The Role of Competition," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 249-261, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marco Fugazza & Jan Hoffmann, 2017. "Liner shipping connectivity as determinant of trade," Journal of Shipping and Trade, Springer, vol. 2(1), pages 1-18, December.
    2. Jan Hoffmann & Naima Saeed & Sigbjørn Sødal, 2020. "Liner shipping bilateral connectivity and its impact on South Africa’s bilateral trade flows," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 22(3), pages 473-499, September.
    3. Xiaoming Guo & Jinyu Li & Sen Huang, 2023. "Study on Trade Effects of Green Maritime Transport Efficiency: An Empirical Test for China Based on Trade Decision Model," Sustainability, MDPI, vol. 15(16), pages 1-30, August.
    4. Jan Hoffmann & Naima Saeed & Sigbjørn Sødal, 0. "Liner shipping bilateral connectivity and its impact on South Africa’s bilateral trade flows," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 0, pages 1-27.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patricia Sourdin & Richard Pomfret, 2012. "Trade Facilitation," Books, Edward Elgar Publishing, number 14596.
    2. Richard Pomfret & Patricia Sourdin, 2010. "Why do trade costs vary?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(4), pages 709-730, December.
    3. Asturias, Jose, 2020. "Endogenous transportation costs," European Economic Review, Elsevier, vol. 123(C).
    4. Bianka Dettmer & Andreas Freytag & Peter Draper, 2013. "Check-in, departure and arrival times: Air cargo in Southern Africa?," Jena Economics Research Papers 2013-018, Friedrich-Schiller-University Jena.
    5. Alberto Behar & Anthony J. Venables, 2011. "Transport Costs and International Trade," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 5, Edward Elgar Publishing.
    6. Dominik Boddin & Frank Stähler, 2018. "The Organization of International Trade," CESifo Working Paper Series 7378, CESifo.
    7. Dettmer, Bianka & Freytag, Andreas & Draper, Peter, 2014. "Air Cargo beyond Trade Barriers in Africa," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 29, pages 95-138.
    8. De Oliveira, Gabriel Figueiredo, 2014. "Determinants of European freight rates: The role of market power and trade imbalance," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 62(C), pages 23-33.
    9. Miren Lafourcade & Jacques-François Thisse, 2011. "New Economic Geography: The Role of Transport Costs," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 4, Edward Elgar Publishing.
    10. Dasgupta, Kunal & Mondria, Jordi, 2018. "Inattentive importers," Journal of International Economics, Elsevier, vol. 112(C), pages 150-165.
    11. Coşar, A. Kerem & Demir, Banu, 2018. "Shipping inside the box: Containerization and trade," Journal of International Economics, Elsevier, vol. 114(C), pages 331-345.
    12. Yulin Hou & Yun Wang & Wenjun Xue, 2021. "What explains trade costs? Institutional quality and other determinants," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 478-499, February.
    13. Thomas Orliac, 2012. "The economics of trade facilitation [L'économie de la facilitation des échanges]," SciencePo Working papers Main tel-03681980, HAL.
    14. Takauchi, Kazuhiro, 2015. "Endogenous transport price and international R&D rivalry," Economic Modelling, Elsevier, vol. 46(C), pages 36-43.
    15. Eugenia Go, 2020. "Trade implications of transport cost in the Philippines," Economics PhD Theses 0320, Department of Economics, University of Sussex Business School.
    16. Chen, Natalie & Novy, Dennis, 2008. "International Trade Integration: A Disaggregated Approach," CEPR Discussion Papers 7103, C.E.P.R. Discussion Papers.
    17. 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.
    18. Hayakawa, Kazunobu & Ishikawa, Jota & Tarui, Nori, 2020. "What goes around comes around: Export-enhancing effects of import-tariff reductions," Journal of International Economics, Elsevier, vol. 126(C).
    19. Douglas H. Brooks, 2016. "Connectivity in East Asia," Asian Economic Policy Review, Japan Center for Economic Research, vol. 11(2), pages 176-194, July.
    20. Keith Head & Thierry Mayer, 2013. "What separates us? Sources of resistance to globalization," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1196-1231, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed012:1095. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.