Working Paper: CEPR ID: DP3530
Authors: Elisabetta Mazzenga; Morten Ravn
Abstract: We evaluate the quantitative effects of introducing costs of transporation into an international trade model. We model these costs through the introduction of international transportation services sector. Costs of transportation have substantial long-run effects on welfare and may impact on the pattern of trade. However, business cycle effects on relative price movements and on international comovements are less pertinent since decreased trade volatility counteracts the effects of transportation cost variations. Nevertheless, it is also shown that costs of transportation combined with delivery lags go a long way towards resolving, in particular, the international comovement puzzle.
Keywords: costs of transportation; delivery lags; home bias in trade; international business cycles; international comovements; real exchange rates; terms of trade
JEL Codes: E32; F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Transportation costs (L91) | Welfare (I38) |
| Transportation costs (L91) | Trade patterns (F10) |
| Transportation costs (L91) | Business cycle effects (E32) |
| Trade volatility (F31) | Business cycle effects (E32) |
| Transportation costs + Delivery lags (L91) | International comovements (F29) |