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Endogenous Transport Costs in International Trade

Author

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  • Joern Kleinert

    ()

  • Julia Spies

Abstract

In this paper we claim that distance alone is a poor proxy for international transport costs in empirical studies. We model a manufacturing and a transport sector and let the level of manufacturing exports determine the demand for transport services. Above a particular trade level, transport service suppliers find it profit-maximizing to invest in an advanced transport technology, which lowers their marginal costs and as a consequence, equilibrium transport prices. Transport costs thus vary with two characteristics: with the distance between two locations and with the endogenous decision to invest in a more efficient technology which is driven, in turn, by the bilateral export level. A simulation exercise reveals that ignoring the effect of the investment decision on transport costs biases empirical results. The empirical estimations rely on newly collected transport price data from United Parcel Service (UPS). We apply an instrumental variable (IV) estimator to account for the endogeneity of the investment decision. Our results confirm that transport prices are influenced by both the distance and the level of exports between two countries. We find that trade partners with 10% more exports enjoy 0.8% lower transport prices.

Suggested Citation

  • Joern Kleinert & Julia Spies, 2011. "Endogenous Transport Costs in International Trade," IAW Discussion Papers 74, Institut für Angewandte Wirtschaftsforschung (IAW).
  • Handle: RePEc:iaw:iawdip:74
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    File URL: http://www.iaw.edu/RePEc/iaw/pdf/iaw_dp_74.pdf
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    References listed on IDEAS

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    Cited by:

    1. Virginie Coudert & Cécile Couharde & Valérie Mignon, 2013. "On Currency Misalignments within the Euro Area," Review of International Economics, Wiley Blackwell, pages 35-48.
    2. Takauchi, Kazuhiro, 2015. "Endogenous transport price and international R&D rivalry," Economic Modelling, Elsevier, pages 36-43.
    3. Lugovskyy, Oleksandr & Skiba, Alexandre, 2014. "Effect of distance on trade under slope heterogeneity and cross-correlated effects," Economics Discussion Papers 2014-30, Kiel Institute for the World Economy (IfW).
    4. repec:spr:weltar:v:153:y:2017:i:4:d:10.1007_s10290-017-0286-0 is not listed on IDEAS
    5. Gabor Békés & Lionel Fontagné & Balazs Murakozy & Vincent Vicard, 2015. "Shipment frequency of exporters and demand uncertainty: An inventory management approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01315615, HAL.
    6. David von Below & Pierre-Louis Vezina, 2013. "The Trade Consequences of Pricey Oil," OxCarre Working Papers 115, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    7. Takauchi, Kazuhiro, 2015. "Strategic export policy, monopoly carrier, and product differentiation," MPRA Paper 66003, University Library of Munich, Germany.
    8. Fabien CANDAU & Florent DEISTING & Julie SCHLICK, 2016. "How Income and Crowding Eects inuence the World Market for French Wines," Working Papers 2015-2016_8, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Mar 2016.
    9. Tibor Besedeš, 2013. "The Role of NAFTA and Returns to Scale in Export Duration," CESifo Economic Studies, CESifo, pages 306-336.
    10. David von Below & Pierre-Louis Vézina, 2016. "The Trade Consequences of Pricey Oil," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(2), pages 303-318, June.

    More about this item

    Keywords

    Distance; endogenous transport costs;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • 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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