Gains from Reducing Transport Costs: Essential Transport Policy Suggestions

This paper investigates the gains from reducing international transport costs for 131 countries, considering four major transport modes of air, sea, rail, and road. Using the implications of an economic model with multiple transport modes and a comprehensive dataset from 2016-2020, our analysis estimates that a complete removal of these costs would increase welfare by 3.8% for the average country. The potential gains exhibit significant heterogeneity based on economic and geographic factors. Developing economies stand to gain the most at 5.47%, far exceeding the 3.55% for emerging markets and 2.89% for advanced economies, revealing the disproportionate burden transport costs place on lower-income nations. While reducing sea transport costs (2.00%) offers the largest average benefit, geographical constraints are also critical as landlocked countries would benefit most from reducing air (1.28%) and road (1.31%) costs. At the country level, the variations are even more pronounced, where The Gambia shows the highest potential gain at 12.48%, while large economies like China would see minimal gains (0.35%). These divergent outcomes underscore the need for tailored, mode-specific transport policies to maximize welfare improvements, especially for developing and geographically disadvantaged countries.