Working Paper: CEPR ID: DP4933
Authors: Gilles Duranton; Michael Storper
Abstract: While transport costs have fallen, the empirical evidence also points at rising total trade costs. In a model of industry location with endogenous transaction costs, we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade.
Keywords: agglomeration; trade costs; transaction costs; transport costs; vertically linked industries
JEL Codes: D23; D24; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Decline in transport costs (R41) | Increase in total trade costs (F19) |
| Decline in transport costs (R41) | Higher quality machines produced (L15) |
| Higher quality machines produced (L15) | Increase in transaction costs associated with trade (F12) |
| Decline in transport costs (R41) | Increase in transaction costs associated with trade (F12) |
| High transport costs (L91) | Indirect effect of increased quality dominates direct effect of lower transport costs (L15) |