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Geography, Search Frictions and Endogenous Trade Costs

Author

Listed:
  • Brancaccio, Giulia
  • Kalouptsidi, Myrto
  • Papageorgiou, Theodore

Abstract

We leverage detailed data on vessel movements and shipping contracts to shed new light on world trade costs and trade flows. The data reveal new facts about shipping patterns, and motivate us to build a framework modeling the behavior of exporters and ships. Our framework has two novel features: (i) trade costs are endogenous and determined jointly with trade flows; as a result, they depend on the entire network of countries; (ii) search frictions between exporters and ships can limit trade. We estimate the model and recover flexibly the matching process between ships and exporters. Endogenous trade costs provide a novel link to understand trade patterns and we showcase this by considering the impact of (i) an improvement in shipping efficiency; (ii) a slow-down in China; (iii) the opening of the Northwest Passage; (iv) search frictions.

Suggested Citation

  • Brancaccio, Giulia & Kalouptsidi, Myrto & Papageorgiou, Theodore, 2017. "Geography, Search Frictions and Endogenous Trade Costs," CEPR Discussion Papers 12141, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12141
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    References listed on IDEAS

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    1. Ricardo Reyes-Heroles, 2017. "The Role of Trade Costs in the Surge of Trade Imbalances," 2017 Meeting Papers 212, Society for Economic Dynamics.
    2. 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.
    3. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October.
    4. Ariel Pakes & Michael Ostrovsky & Steven Berry, 2007. "Simple estimators for the parameters of discrete dynamic games (with entry/exit examples)," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 373-399, June.
    5. Patrick Bajari & C. Lanier Benkard, 2005. "Demand Estimation with Heterogeneous Consumers and Unobserved Product Characteristics: A Hedonic Approach," Journal of Political Economy, University of Chicago Press, vol. 113(6), pages 1239-1276, December.
    6. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
    7. Jota Ishikawa & Nori Tarui, 2015. "Backfiring with backhaul problems: Trade and Industrial Policies with Endogenous Transport Costs," Working Papers 201514, University of Hawaii at Manoa, Department of Economics.
    8. Paul Scott & Eduardo Souza-Rodrigues & Myrto Kalouptsidi, 2016. "Identification of Counterfactuals in Dynamic Discrete Choice Models," 2016 Meeting Papers 282, Society for Economic Dynamics.
    9. Victor Aguirregabiria & Pedro Mira, 2007. "Sequential Estimation of Dynamic Discrete Games," Econometrica, Econometric Society, vol. 75(1), pages 1-53, January.
    10. Frechette, Guilaume & Lizzeri, Alessandro & Salz, Tobias, 2016. "Frictions in a Competitive, Regulated Market Evidence from Taxis," CEPR Discussion Papers 11626, C.E.P.R. Discussion Papers.
    11. Myrto Kalouptsidi & Paul T. Scott & Eduardo Souza-Rodrigues, 2015. "Identification of Counterfactuals in Dynamic Discrete Choice Models," NBER Working Papers 21527, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Bosker, Maarten & Buringh, Eltjo, 2018. "Ice(berg) transport costs," CEPR Discussion Papers 12660, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Geography; matching function estimation; search frictions; shipping; Trade Costs; Trade Flows; trade imbalances; Transportation;

    JEL classification:

    • F1 - International Economics - - Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L0 - Industrial Organization - - General
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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