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Transportation, freight rates, and economic geography

Author

Listed:
  • Kristian Behrens

    (Canada Research Chair, Department of Economics, Universite du Quebec a Montreal (uqam))

  • Pierre M. Picard

    (crea, Université du Luxembourg, Luxembourg; and core, Université catholique de Louvain, Belgium)

Abstract

We investigate the role of competitive transport markets in shaping the location of economic activity and the pattern of trade. In our model, carriers supply transport services for shipping man- ufactured goods, and freight rates are set to clear transport markets. Each carrier must commit to the maximum capacity for a round-trip and thus faces a logistics problem as there are opportunity costs of returning empty. These costs increase the freight rates charged to rms located in regions that are net exporters of manufactured goods. Since demand for transport services depends on the spatial distribution of economic activity, the concentration of production in one region raises freight rates to serve foreign markets from there, thus working against specialization and the agglomera- tion of rms. Consequently, a more even spatial distribution of rms and production prevails at equilibrium when freight rates are endogenously determined than when they are assumed to be exogenous as in the literature.

Suggested Citation

  • Kristian Behrens & Pierre M. Picard, 2011. "Transportation, freight rates, and economic geography," DEM Discussion Paper Series 11-02, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:11-02
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    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)

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