Who's Getting Globalized? The Size and Implications of Intra-National Trade Costs

Abstract

How large are the intra-national trade costs that separate consumers in remote locations of developing countries from global markets? What do those barriers imply for the intra-national incidence of the gains from falling international trade barriers? We develop a new methodology for answering these questions and apply it to newly collected CPI micro-data from Ethiopia and Nigeria (as well as to the US). In order to overcome three well-known challenges that arise when using price gaps to estimate trade costs, we: (i) work exclusively with a sample of goods that are identified at the barcode-level (to mitigate bias due to unobserved quality differences over space); (ii) collect novel data on the origin location of each product in our sample (to focus only on the pairs of locations that actually identify trade costs); and (iii) use estimates of cost pass-through to correct for markups that potentially vary over space (to extract trade costs from price variation in an environment with potentially oligopolistic intermediaries). Without these corrections, we find that our estimates of the cost of distance would be biased downwards by a factor of approximately four. Our preferred estimates imply that the effect of log distance on trade costs within Ethiopia or Nigeria is four to five times larger than in the US. We also use our pass-through estimates to calculate the incidence of surplus increases due to falling world prices. We find that intermediaries capture the majority of the surplus, and that their share is even higher in distant locations, suggesting that remote consumers see only a small part of the gains from falling international trade barriers.

Farther on down the Road: Transport Costs, Trade and Urban Growth in Sub-Saharan Africa

“…Thus there is some variation in the timing of its implementation across countries, though this timing is clearly endogenous. As noted above, country-year fixed effects control for nationally uniform effects of trade policy, but Coşar and Fajgelbaum (forthcoming) and Atkin and Donaldson (2015) have argued that openness may have a greater impact near trading hubs. Table 4 columns 6 and 7 consider the possibility that AGOA is driving my results.…”

“…Atkin and Donaldson (2015) consider the effect of transport costs on prices in hinterland cities. Gollin and Rogerson (2010) find that in Uganda, internal transport costs for crops can exceed their farmgate price.…”

Does distance reflect more than transport costs?

“…Although distance is generally thought to affect price differences mainly through transport cost channel, there could be other channels through which it operates on spatial price differences in view of the growing body of evidence that mark-ups and other related factors also systematically vary with distance (e.g., Atkin and Donaldson, 2013). In this study, we decompose distance effect into TC and NTC by utilizing a novel dataset of trade cost constructed by Allen and Arkolakis (forthcoming).…”

“…Standard trade models, for example, typically assume that price difference between locations increases with distance and a large empirical literature has provided evidence that prices are more similar for locations which are geographically proximate (e.g., Crucini et al, 2012). Whereas the conventional literature has interpreted this distance effect as solely reflecting transport costs, distance may induce price wedges between locations via additional channels to * Correspondence to: Department of Economics, University of Texas at Arlington, transport costs in view of the growing evidence that other factors may also operate on the geographic distance (e.g., Atkin andDonaldson, 2013 andGopinath et al, 2011). Local distribution costs, for instance, are likely to be more similar between nearby locations if distribution of goods is labor intensive and labor markets are geographically integrated (e.g., Anderson andvan Wincoop, 2004 andEngel et al, 2003).…”

Pass‐through in a concentrated industry: empirical evidence and regulatory implications

“…Atkin and Donaldson () assume that competition (and markups) are purely local, unobserved, and specific to the origin‐destination pair. To implement, the authors estimate pass‐through with subsample regressions on individual origin‐destination pairs in a first stage.…”