Trade costs and patterns of trade in the Philippines

I investigate the effect of a transport program in the Philippines on domesticmaritime trade patterns. The Roll-on Roll-off Terminal System (RRTS) introduced in 2003 promotes the use of roll-on roll-off ships for interisland trade. Exploiting the variation in the availability of services between ports and the timing at which they were introduced, I find that port-pairs in RRTS trade 35% more compared to unconnected pairs with comparable characteristics. This gain largely comes from the greater variety of products traded along RRTS pairs. Transactions are 7.7% to 9.3% more frequent in RRTS routes, suggestive of inventory management as an avenue of trade costs savings. The strong responses in the extensive margin and transaction frequency highlight how the RRTS reduced the fixed cost of trade. High value and time-sensitive products systematically benefit more from the RRTS. These gains do not come from displacing trade from competing non-RRTS ports. Instead, the RRTS complements trade in liner routes by supporting feeder traffic.