Endogenous Transport Costs in International Trade
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.
|Date of creation:||Jul 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Ob dem Himmelreich 1, D-72074 Tübingen|
Phone: (+49) 7071 98 96 -0
Fax: (+49) 7071 98 96 -99
Web page: http://www.iaw.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Baier, Scott L. & Bergstrand, Jeffrey H., 2004. "Economic determinants of free trade agreements," Journal of International Economics, Elsevier, vol. 64(1), pages 29-63, October.
- Joao Santos Silva & Silvana Tenreyro, 2005.
"The log of gravity,"
LSE Research Online Documents on Economics
3744, London School of Economics and Political Science, LSE Library.
- 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.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005.
"Market Size, Trade, and Productivity,"
Development Working Papers
201, Centro Studi Luca d'Agliano, University of Milano.
- Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," NBER Working Papers 11393, National Bureau of Economic Research, Inc.
- David Hummels & Volodymyr Lugovskyy & Alexandre Skiba, 2007.
"The Trade Reducing Effects of Market Power in International Shipping,"
NBER Working Papers
12914, National Bureau of Economic Research, Inc.
- 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.
- Inmaculada Martínez-Zarzoso & Gordon Wilmsmeier, 2010. "Freight Rates and the Margins of Intra-Latin American Maritime Trade," Ibero America Institute for Econ. Research (IAI) Discussion Papers 201, Ibero-America Institute for Economic Research.
- Rudolph, Stephan, 2009. "The gravity equation with micro-founded trade costs," Dresden Discussion Paper Series in Economics 11/09, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Paula Bustos, 2009.
"Trade Liberalization, Exports and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinean Firms,"
2009 Meeting Papers
1029, Society for Economic Dynamics.
- Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-40, February.
- Paula Bustos, 2009. "Trade liberalization, exports and technology upgrading: Evidence on the impact of MERCOSUR on Argentinean firms," Economics Working Papers 1173, Department of Economics and Business, Universitat Pompeu Fabra.
- David T Coe & Arvind Subramanian & Natalia T Tamirisa, 2007. "The Missing Globalization Puzzle: Evidence of the Declining Importance of Distance," IMF Staff Papers, Palgrave Macmillan, vol. 54(1), pages 34-58, May.
- 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.
- Rudolph, Stephan, 2010. "Estimating gravity equations with endogeneous trade costs," Dresden Discussion Paper Series in Economics 01/10, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Peter Egger & Mario Larch & Kevin E. Staub & Rainer Winkelmann, 2010.
"The Trade Effects of Endogenous Preferential Trade Agreements,"
CESifo Working Paper Series
3253, CESifo Group Munich.
- Peter Egger & Mario Larch & Kevin E. Staub & Rainer Winkelmann, 2011. "The Trade Effects of Endogenous Preferential Trade Agreements," American Economic Journal: Economic Policy, American Economic Association, vol. 3(3), pages 113-43, August.
- Peter Egger & Mario Larch & Kevin E. Staub & Rainer Winkelmann, 2010. "The Trade Effects of Endogenous Preferential Trade Agreements," SOI - Working Papers 1013, Socioeconomic Institute - University of Zurich.
- Bruce A. Blonigen & Wesley W. Wilson, 2008. "Port Efficiency and Trade Flows," Review of International Economics, Wiley Blackwell, vol. 16(1), pages 21-36, 02.
- David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
- Richard Pomfret & Patricia Sourdin, 2010.
"Why do trade costs vary?,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(4), pages 709-730, December.
- 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.
- Ximena Clark & David Dollar & Alejandro Micco, 2004. "Port Efficiency, Maritime Transport Costs and Bilateral Trade," NBER Working Papers 10353, National Bureau of Economic Research, Inc.
- BEHRENS, Kristian & PICARD, Pierre M., 2008.
"Transportation, freight rates, and economic geography,"
CORE Discussion Papers
2008040, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Behrens, Kristian & Picard, Pierre M., 2011. "Transportation, freight rates, and economic geography," Journal of International Economics, Elsevier, vol. 85(2), pages 280-291.
- Kristian Behrens & Pierre M. Picard, 2011. "Transportation, freight rates, and economic geography," CREA Discussion Paper Series 11-02, Center for Research in Economic Analysis, University of Luxembourg.
- David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 131-154, Summer.
- Wilmsmeier, Gordon & Hoffmann, Jan & Sanchez, Ricardo J., 2006. "The Impact of Port Characteristics on International Maritime Transport Costs," Research in Transportation Economics, Elsevier, vol. 16(1), pages 117-140, January.
- Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
When requesting a correction, please mention this item's handle: RePEc:iaw:iawdip:74. 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: (Rolf Kleimann)
If references are entirely missing, you can add them using this form.