Infrastructure, geographical disadvantage, and transport costs

The authors use three different data sets to investigate how transport depends on geography and infrastructure. Landlocked countries have high transport costs, which can be substantially reduced by improving the quality of their infrastructure and that of transit countries. Analysis of bilateral trade data confirms the importance of infrastructure. The authors estimate the elasticity of trade flows with regard to transport costs to be high, at about -2.5. This means that: 1) The median landlocked country has only 30 percent of the trade volume of the median coastal economy. 2) Halving transport costs increases the volume of trade by a factor of five. 3) Improving infrastructure from the 75th to the 50th percentile increases trade by 50 percent. Using their results and a basic gravity model to study Sub-Saharan African trade, both internally and with the rest of the world, the authors find that infrastructure problems largely explain the relatively low levels of African trade.