Geography, Transportation, and Endogenous Trade Costs

Abstract

In this paper, we study the role of the transportation sector in world trade. We build a spatial model that centers on the interaction of the market for (oceanic) transportation services and the market for world trade in goods. The model delivers equilibrium trade flows, as well as equilibrium trade costs (shipping prices). Using detailed data on vessel movements and shipping prices, we document novel facts about shipping patterns; we then flexibly estimate our model. We use this setup to demonstrate that the transportation sector (i) attenuates differences in the comparative advantage across countries; (ii) generates network effects in trade costs; and (iii) dampens the impact of shocks on trade flows. These three mechanisms reveal a new role for geography in international trade that was previously concealed by the frequently‐used assumption of exogenous trade costs. Finally, we illustrate how our setup can be used for policy analysis by evaluating the impact of future and existing infrastructure projects (e.g., Northwest Passage, Panama Canal).

Spatial Distribution of Supply and the Role of Market Thickness: Theory and Evidence from Ride Sharing

“…This paper has certain limitations. On the empirical front, although our reduced-form approach makes it more practical to implement, it also comes at a cost: unlike complementary studies, (Brancaccio et al (2019a); Buchholz (2018); Frechette et al (2019), etc. ), our framework does not deliver welfare analysis.…”

Optimal Transport Networks in Spatial Equilibrium

“…Hummels and Schaur () quantified that one additional day in transit is equivalent to 0.6 to 2.1 percent tariff, and Djankov, Freund, and Pham () argued that each additional day of delay is equivalent to a country distancing 70 km from its trade partner. Firth () showed that the time delays caused by congestion of railroads impact firm‐level outcomes in India, and Brancaccio, Kalouptsidi, and Papageorgiou () argued, using a structurally estimated search model of ships and exporters, that congestion in ports leads to costly delays for exporters.…”

All Aboard: The Effects of Port Development

“…We complement this literature by developing a framework in which trade costs are endogenous, in a way that is both tractable and preserves the gravity structure of trade flows. This relates our paper to Fajgelbaum and Schaal (2020) and Santamaría (2020), who consider endogenous road construction in multi-location models of economic geography, as well as Brancaccio, Kalouptsidi, and Papageorgiou (2020), who endogenize trade costs in the non-containerized shipping sector. Unlike these papers, we focus on port development as a source of endogenous shipping costs, and solve for the decentralized equilibrium as opposed to the optimal allocation to quantify the effect of port development on trade, the distribution of population, and welfare.…”

“…As such, it is similar to contemporary satellite AIS (Automatic Identification System) data that tracks the precise movements of vessels around the globe. These type of AIS data are used inHeiland et al (2021) andBrancaccio et al (2020).14 The data were entered from issues for the first week of May. The data are discussed in more detail inDucruet et al (2018).…”