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A trade hierarchy of cities based on transport cost thresholds

Author

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  • Jorge Díaz-Lanchas
  • José Luis Zofío
  • Carlos Llano

Abstract

Empirical evidence has been lacking to explain trade agglomerations within countries. Starting with a novel micro-database of road freight shipments between Spanish municipalities for the period 2003–07, we break down city (municipal) trade flows into the extensive and intensive margins and assess trade frictions and trade concentration relying on a unique generalized transport cost measure and three internal borders: NUTS-5 (municipal), NUTS-3 (provincial) and NUTS-2 (regional). We find a stark accumulation of trade flows up to a transport cost value of €189 (approximately 170 km) and conclude that this high density is not due to administrative borders effects but to significant changes in the trade-to-transport costs relationship. To support this hypothesis, we propose and conduct an endogenous Chow test to identify significant thresholds at which trade flows change structurally with transport costs. These breakpoints allow us to split the sample when controlling for internal borders, and to define trade market areas corresponding to specific transport costs that consistently reveal an urban hierarchy of cities. The results provide clear evidence with which to corroborate the predictions of Central Place Theory.

Suggested Citation

  • Jorge Díaz-Lanchas & José Luis Zofío & Carlos Llano, 2022. "A trade hierarchy of cities based on transport cost thresholds," Regional Studies, Taylor & Francis Journals, vol. 56(8), pages 1359-1376, August.
    • Handle: RePEc:taf:regstd:v:56:y:2022:i:8:p:1359-1376
    DOI: 10.1080/00343404.2021.1967922
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    2. Persyn, Damiaan & Díaz-Lanchas, Jorge & Barbero, Javier, 2022. "Estimating road transport costs between and within European Union regions," Transport Policy, Elsevier, vol. 124(C), pages 33-42.
    3. Jorge Díaz-Lanchas & Peter Mulder, 2021. "Does decentralization of governance promote urban diversity? Evidence from Spain," Regional Studies, Taylor & Francis Journals, vol. 55(6), pages 1111-1128, June.
    4. Miguel Almunia & Pol Antràs & David Lopez-Rodriguez & Eduardo Morales, 2021. "Venting Out: Exports during a Domestic Slump," American Economic Review, American Economic Association, vol. 111(11), pages 3611-3662, November.
    5. Santiago Perez Balsalobre & Carlos Llano Verduras & Jorge Diaz-Lanchas, 2019. "Measuring subnational economic complexity: An application with Spanish data," JRC Working Papers on Territorial Modelling and Analysis 2019-05, Joint Research Centre.

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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