IDEAS home Printed from https://ideas.repec.org/p/cor/louvco/2008040.html
   My bibliography  Save this paper

Transportation, freight rates, and economic geography

Author

Listed:
  • BEHRENS, Kristian
  • PICARD, Pierre M.

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

Abstract

We investigate the role of the transport sector in structuring the location of economic activity within two-region economic geography models of the footloose capital and core-periphery types. In our setting, competitive carriers offer transport services for shipping manufactured goods across regions and freight rates are determined endogenously to clear transport markets. Each carrier commits to the maximum capacity for a round-trip and thus faces a simple logistic problem: there are costs associated with 'returning empty', and those costs increase the freight rates charged to manufacturing firms. Since demand for transport services depends on the spatial distribution of economic activity, agglomeration in one region raises freight rates to serve foreign markets, thus generating an additional dispersion force. We show that a more equal equilibrium distribution of firms prevails when freight rates are endogenously determined than when they are exogenous and that multiple equilibria (including partial agglomeration) usually coexist.

Suggested Citation

  • BEHRENS, Kristian & PICARD, Pierre M., 2008. "Transportation, freight rates, and economic geography," LIDAM Discussion Papers CORE 2008040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2008040
    as

    Download full text from publisher

    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2008_40.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-1276, December.
    2. Behrens, Kristian & Gaigné, Carl & Thisse, Jacques-François, 2009. "Industry location and welfare when transport costs are endogenous," Journal of Urban Economics, Elsevier, vol. 65(2), pages 195-208, March.
    3. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
    4. Behrens, Kristian & Gaigne, Carl & Ottaviano, Gianmarco I.P. & Thisse, Jacques-Francois, 2006. "How density economies in international transportation link the internal geography of trading partners," Journal of Urban Economics, Elsevier, vol. 60(2), pages 248-263, September.
    5. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    6. repec:adr:anecst:y:1997:i:47:p:11 is not listed on IDEAS
    7. Puga, Diego, 1999. "The rise and fall of regional inequalities," European Economic Review, Elsevier, vol. 43(2), pages 303-334, February.
    8. Demirel, Erhan & Ommeren, Jos van & Rietveld, Piet, 2010. "A matching model for the backhaul problem," Transportation Research Part B: Methodological, Elsevier, vol. 44(4), pages 549-561, May.
    9. Gianmarco Ottaviano & Takatoshi Tabuchi & Jacques-FranÁois Thisse, 2002. "Agglomeration and Trade Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 409-436, May.
    10. 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.
    11. Micco, Alejandro & Serebrisky, Tomas, 2006. "Competition regimes and air transport costs: The effects of open skies agreements," Journal of International Economics, Elsevier, vol. 70(1), pages 25-51, September.
    12. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
    13. Larch, Mario, 2007. "The multinationalization of the transport sector," Journal of Policy Modeling, Elsevier, vol. 29(3), pages 397-416.
    14. 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.
    15. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    16. repec:adr:anecst:y:1997:i:47 is not listed on IDEAS
    17. 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.
    18. Piet Rietveld & Roberto Roson, 2002. "Direction dependent prices in public transport: A good idea? The back haul pricing problem for a monopolistic public transport firm," Transportation, Springer, vol. 29(4), pages 397-417, November.
    19. Ottaviano, Gianmarco & Thisse, Jacques-Francois, 2004. "Agglomeration and economic geography," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 58, pages 2563-2608, Elsevier.
    20. Picard, Pierre M. & Zeng, Dao-Zhi, 2005. "Agricultural sector and industrial agglomeration," Journal of Development Economics, Elsevier, vol. 77(1), pages 75-106, June.
    21. Richard Baldwin & Rikard Forslid & Philippe Martin & Gianmarco Ottaviano & Frederic Robert-Nicoud, 2005. "Economic Geography and Public Policy," Economics Books, Princeton University Press, edition 1, number 7524, October.
    22. Knut Wicksell & F. W. Taussig, 1918. "International Freights and Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 32(2), pages 404-414.
    23. Casas, F R, 1983. "International Trade with Produced Transport Services," Oxford Economic Papers, Oxford University Press, vol. 35(1), pages 89-109, March.
    24. Pierre M. Picard & Dao‐Zhi Zeng, 2010. "A Harmonization Of First And Second Natures," Journal of Regional Science, Wiley Blackwell, vol. 50(5), pages 973-994, December.
    25. Falvey, Rodney E, 1976. "Transport Costs in the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 86(343), pages 536-550, September.
    26. Bruce A. Blonigen & Wesley W. Wilson, 2008. "Port Efficiency and Trade Flows," Review of International Economics, Wiley Blackwell, vol. 16(1), pages 21-36, February.
    27. Carl Gaigne & Kristian Behrens, 2006. "Density (dis)economies in transportation: revisiting the core-periphery model," Economics Bulletin, AccessEcon, vol. 18(5), pages 1-7.
    28. Alexandre Skiba, 2007. "Regional Economies of Scale in Transportation and Regional Welfare," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200705, University of Kansas, Department of Economics, revised Sep 2007.
    29. Takahashi, Takaaki, 2006. "Economic geography and endogenous determination of transport technology," Journal of Urban Economics, Elsevier, vol. 60(3), pages 498-518, November.
    30. Michael Gasiorek, 1997. "Trade Liberalisation and the Distribution of Welfare Gains under Imperfect Competition," Annals of Economics and Statistics, GENES, issue 47, pages 227-244.
    31. Cassing, James H, 1978. "Backhaul Freight Rates and Non-Traded Goods in Bilateral Trade," Australian Economic Papers, Wiley Blackwell, vol. 17(30), pages 167-171, June.
    32. Casas, Fran?ois R. & Choi, E. Kwan, 1985. "Some Paradoxes of Transport Costs in International Trade Theory," Staff General Research Papers Archive 10606, Iowa State University, Department of Economics.
    33. Olaf Jonkeren & Erhan Demirel & Jos van Ommeren & Piet Rietveld, 2011. "Endogenous transport prices and trade imbalances," Journal of Economic Geography, Oxford University Press, vol. 11(3), pages 509-527, May.
    34. Sjostrom, William, 1989. "Collusion in Ocean Shipping: A Test of Monopoly and Empty Core Model s," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1160-1179, October.
    35. James H. Cassing, 1978. "Transport Costs in International Trade Theory: A Comparison with the Analysis of Nontraded Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 535-550.
    36. Simon P. Anderson & Wesley W. Wilson, 2008. "Spatial Competition, Pricing, And Market Power In Transportation: A Dominant Firm Model," Journal of Regional Science, Wiley Blackwell, vol. 48(2), pages 367-397, May.
    37. Li, Jing-An & Leung, Stephen C.H. & Wu, Yue & Liu, Ke, 2007. "Allocation of empty containers between multi-ports," European Journal of Operational Research, Elsevier, vol. 182(1), pages 400-412, October.
    Full references (including those not matched with items on IDEAS)

    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. Jian Wang & Junqian Xu, 2015. "Home market effect, spatial wages disparity: an empirical reinvestigation of China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(2), pages 313-333, December.
    2. José M. Gaspar, 2018. "A prospective review on New Economic Geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 61(2), pages 237-272, September.
    3. Asturias, Jose, 2020. "Endogenous transportation costs," European Economic Review, Elsevier, vol. 123(C).
    4. Dominik Boddin & Frank Stähler, 2018. "The Organization of International Trade," CESifo Working Paper Series 7378, CESifo.
    5. Yiming Zhou, 2019. "Home market effect, land rent, and welfare," Asia-Pacific Journal of Regional Science, Springer, vol. 3(2), pages 561-580, June.
    6. 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.
    7. Behrens, Kristian & Gaigné, Carl & Thisse, Jacques-François, 2009. "Industry location and welfare when transport costs are endogenous," Journal of Urban Economics, Elsevier, vol. 65(2), pages 195-208, March.
    8. Takahashi, Takaaki, 2011. "Directional imbalance in transport prices and economic geography," Journal of Urban Economics, Elsevier, vol. 69(1), pages 92-102, January.
    9. Olga Alonso-Villar, 2006. "A Reflection On The Effects Of Transport Costs Within The New Economic Geography," Working Papers 57, ECINEQ, Society for the Study of Economic Inequality.
    10. Kristian Behrens & Frédéric Robert‐Nicoud, 2009. "Krugman's Papers in Regional Science: The 100 dollar bill on the sidewalk is gone and the 2008 Nobel Prize well‐deserved," Papers in Regional Science, Wiley Blackwell, vol. 88(2), pages 467-489, June.
    11. Pflüger, Michael P. & Tabuchi, Takatoshi, 2008. "Trade and Location with Land as a Productive Factor," IZA Discussion Papers 3716, Institute of Labor Economics (IZA).
    12. Pierre Philippe Combes & Gilles Duranton & Henry G. Overman, 2005. "Agglomeration and the adjustment of the spatial economy§," Papers in Regional Science, Wiley Blackwell, vol. 84(3), pages 311-349, August.
    13. J.Peter Neary, 2001. "Of Hype and Hyperbolas: Introducing the New Economic Geography," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 536-561, June.
    14. Pflüger, Michael & Tabuchi, Takatoshi, 2010. "The size of regions with land use for production," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 481-489, November.
    15. Lili Tan & Dao-Zhi Zeng, 2014. "Spatial inequality between developed and developing economies," Papers in Regional Science, Wiley Blackwell, vol. 93(2), pages 229-248, June.
    16. Zeng, Dao-Zhi & Zhao, Laixun, 2010. "Globalization, interregional and international inequalities," Journal of Urban Economics, Elsevier, vol. 67(3), pages 352-361, May.
    17. Corey Lang, 2010. "Heterogeneous transport costs and spatial sorting in a model of New Economic Geography," Papers in Regional Science, Wiley Blackwell, vol. 89(1), pages 191-202, March.
    18. Barbero, Javier & Behrens, Kristian & Zofío, José L., 2018. "Industry location and wages: The role of market size and accessibility in trading networks," Regional Science and Urban Economics, Elsevier, vol. 71(C), pages 1-24.
    19. Takatoshi Tabuchi, 2011. "City Formation and Transport Costs," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 6, Edward Elgar Publishing.
    20. Fabien Candau, 2008. "Entrepreneurs' Location Choice and Public Policies: a Survey of the New Economic Geography," Post-Print hal-02514085, HAL.

    More about this item

    Keywords

    transport sector; freight rates; economic geography; trade.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cor:louvco:2008040. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alain GILLIS). General contact details of provider: https://edirc.repec.org/data/coreebe.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.