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Transport liberalization and regional imbalances with endogenous freight rates

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Abstract

This paper develops a tractable two-region New Economic Geography model with footloose capital and endogenous freight rates to investigate the welfare implications and long-run industry reallocation patterns triggered by transport liberalization. Two policy scenarios are considered: one where a unique tariff per route is imposed, independently of the direction of shipment, and one of complete deregulation. Carriers in fully deregulated transport markets are shown to charge higher markups in shipments towards the periphery. This pricing behavior counterbalances the welfare-decreasing agglomeration forces associated with lowering trade costs and ensures welfare gains in both region in the short and long run.

Suggested Citation

  • Francesco Di Comite, 2018. "Transport liberalization and regional imbalances with endogenous freight rates," JRC Research Reports JRC92386, Joint Research Centre.
    • Handle: RePEc:ipt:iptwpa:jrc92386
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    Keywords

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    JEL classification:

    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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