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Infrastructure, geographical disadvantage, and transport costs

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  • Limao, Nuno
  • Venables, Anthony J.

Abstract

The authors use three different data sets to investigate how transport depends on geography and infrastructure. Landlocked countries have high transport costs, which can be substantially reduced by improving the quality of their infrastructure and that of transit countries. Analysis of bilateral trade data confirms the importance of infrastructure. The authors estimate the elasticity of trade flows with regard to transport costs to be high, at about -2.5. This means that: 1) The median landlocked country has only 30 percent of the trade volume of the median coastal economy. 2) Halving transport costs increases the volume of trade by a factor of five. 3) Improving infrastructure from the 75th to the 50th percentile increases trade by 50 percent. Using their results and a basic gravity model to study Sub-Saharan African trade, both internally and with the rest of the world, the authors find that infrastructure problems largely explain the relatively low levels of African trade.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2257.

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Date of creation: 31 Dec 1999
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Handle: RePEc:wbk:wbrwps:2257

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Keywords: Banks&Banking Reform; Economic Theory&Research; Common Carriers Industry; Transport Economics Policy&Planning; Municipal Financial Management; Municipal Financial Management; Common Carriers Industry; Transport Economics Policy&Planning; Economic Theory&Research; Banks&Banking Reform;

References

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  1. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
  2. Finger, J M & Yeats, Alexander J, 1976. "Effective Protection by Transportation Costs and Tariffs: A Comparison of Magnitudes," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(1), pages 169-76, February.
  3. Soloaga, Isidro & Winters, L. Alan, 1999. "Regionalism in the Nineties: What Effect on Trade?," CEPR Discussion Papers 2183, C.E.P.R. Discussion Papers.
  4. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-21, May.
  5. 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.
  6. Wang, Zhen Kun & Winters, L. Alan, 1991. "The Trading Potential of Eastern Europe," CEPR Discussion Papers 610, C.E.P.R. Discussion Papers.
  7. David T. Coe & Alexander W. Hoffmaister, 1998. "North-South Trade-Is Africa Unusual?," IMF Working Papers 98/94, International Monetary Fund.
  8. Amjadi, A. & Reincke, U. & Yeats, A.J., 1996. "Did External Barriers Cause the Marginalization of Sub-Saharan Africa in World Trade," World Bank - Discussion Papers, World Bank 348, World Bank.
  9. Geraci, Vincent J & Prewo, Wilfried, 1977. "Bilateral Trade Flows and Transport Costs," The Review of Economics and Statistics, MIT Press, vol. 59(1), pages 67-74, February.
  10. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  11. Amjadi, Azita & Reinke, Ulrich & Yeats, Alexander, 1996. "Did external barriers cause the marginalization of sub-Saharan Africa in world trade?," Policy Research Working Paper Series 1586, The World Bank.
  12. Foroutan, Faezeh & Pritchett, Lant, 1993. "Intra - Sub - Saharan African trade : is it too little?," Policy Research Working Paper Series 1225, The World Bank.
  13. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
  14. Dani Rodrik, 1998. "Trade Policy and Economic Performance in Sub-Saharan Africa," NBER Working Papers 6562, National Bureau of Economic Research, Inc.
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