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Time as a Trade Barrier

  • David Hummels
  • Georg Schaur

A large and growing share of international trade is carried on airplanes. Air cargo is many times more expensive than maritime transport but arrives in destination markets much faster. We model firms' choice between exporting goods using fast but expensive air cargo and slow but cheap ocean cargo. This choice depends on the price elasticity of demand and the value that consumers attach to fast delivery and is revealed in the relative market shares of firms who air and ocean ship. We use US imports data that provide rich variation in the premium paid for air shipping and in time lags for ocean transit to identify these parameters and extract consumer's valuation of time. By exploiting variation across US entry coasts we are able to control for selection and for unobserved shocks to product quality and variety that affect market shares. We estimate that each day in transit is equivalent to an ad-valorem tariff of 0.6 to 2.3 percent and that the most time-sensitive trade flows are those involving parts and components trade. These results suggest a link between sharp declines in the price of air shipping and rapid growth in trade as well as growth in world-wide fragmentation of production. Our estimates are also useful for assessing the economic impact of policies that raise or lower time to trade such as security screening of cargo, port infrastructure investment, or streamlined customs procedures.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17758.

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Date of creation: Jan 2012
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Publication status: published as David L. Hummels & Georg Schaur, 2013. "Time as a Trade Barrier," American Economic Review, American Economic Association, vol. 103(7), pages 2935-59, December.
Handle: RePEc:nbr:nberwo:17758
Note: ITI
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  1. Amit Khandelwal, 2007. "The Long and Short (of) Quality Ladders," 2007 Meeting Papers 244, Society for Economic Dynamics.
  2. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  3. James Harrigan & Carolyn Evans, 2004. "Distance, Time and Specialization," Econometric Society 2004 North American Winter Meetings 640, Econometric Society.
  4. David Hummels & Rasmus Jørgensen & Jakob R. Munch & Chong Xiang, 2011. "The Wage Effects of Offshoring: Evidence from Danish Matched Worker-Firm Data," NBER Working Papers 17496, National Bureau of Economic Research, Inc.
  5. Djankov, Simeon & Freund, Caroline & Pham, Cong S., 2006. "Trading on time," Policy Research Working Paper Series 3909, The World Bank.
  6. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  7. Anca D. Cristea & David Hummels & Laura Puzzello & Misak G. Avetisyan, 2011. "Trade and the Greenhouse Gas Emissions from International Freight Transport," NBER Working Papers 17117, National Bureau of Economic Research, Inc.
  8. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  9. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 77(2), pages 265-275, April.
  10. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
  11. 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.
  12. Hummels, David L. & Schaur, Georg, 2010. "Hedging price volatility using fast transport," Journal of International Economics, Elsevier, vol. 82(1), pages 15-25, September.
  13. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  14. 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.
  15. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
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