Working Paper: NBER ID: w23581
Authors: Giulia Brancaccio; Myrto Kalouptsidi; Theodore Papageorgiou
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) implies that net exporters (importers) face higher (lower) trade costs leading to misallocation of productive activities across countries; (ii) creates 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 common 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).
Keywords: Transportation; Trade Costs; International Trade; Geography
JEL Codes: F1; F14; L0; L91; R4; R41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| net exporters (F10) | higher trade costs (F12) |
| higher trade costs (F12) | misallocation of productive activities (D24) |
| attractiveness of regions for ships (R12) | trade costs (F19) |
| transportation sector (L91) | network effects in trade costs (F12) |
| trade costs in one region (F14) | trade costs in neighboring regions (F14) |
| transportation sector (L91) | dampens impact of shocks on trade flows (F41) |
| fuel cost shock (L90) | affects shipping prices (L87) |
| shipping prices (L87) | affects trade volumes (F69) |
| transportation sector (L91) | increase in world trade (F10) |