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The role of direct flights in trade costs

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  • Demet Yilmazkuday

    () (Florida International University)

  • Hakan Yilmazkuday

    () (Florida International University)

Abstract

Abstract Effects of direct flights on trade costs are investigated using micro price data at the city level. After controlling for local retail/distribution costs, traded input prices are obtained to be further used in the measurement of trade costs across cities through arbitrage conditions. The existence of a direct flight enters trade costs regressions negatively and significantly. The results are shown to be robust to the consideration of many control variables, nonlinearities in the effects of distance on trade costs, possible endogeneity of having direct flights between cities and alternative definitions of the data. The direct flights that are shown to be determined by bilateral air services agreements are further shown to reduce trade costs through an endogeneity analysis; the main policy implications are twofold: (i) international trade policies through aviation services, such as Open Skies Agreements of the US, are alternative trade policy tools to reduce international trade barriers; (ii) direct flights facilitate the integration of internal markets as in the case of European Union.

Suggested Citation

  • Demet Yilmazkuday & Hakan Yilmazkuday, 2017. "The role of direct flights in trade costs," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(2), pages 249-270, May.
  • Handle: RePEc:spr:weltar:v:153:y:2017:i:2:d:10.1007_s10290-016-0263-z
    DOI: 10.1007/s10290-016-0263-z
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hakan Yilmazkuday, 2017. "A Solution to the Missing Globalization Puzzle by Non-CES Preferences," Review of International Economics, Wiley Blackwell, vol. 25(3), pages 649-676, August.
    2. Helble, Matthias, 2014. "The Pacific's Connectivity and Its Trade Implications," ADBI Working Papers 499, Asian Development Bank Institute.

    More about this item

    Keywords

    Market integration; Trade costs; Direct flights; Border effects;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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