Freight Costs and Substitution Among Import Regions: Implications for Domestic Prices

Gustavo González, Emiliano Luttini and Marco Rojas

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: How much do changes in the cost of international freight spill over into do-mestic inflation? Using Chilean customs data, we document a sharp, heteroge-neous increase in freight costs during 2019–2021. Exploiting differential expo-sure of importers to origins, we construct a shift-share instrument for import prices. Using this instrument, we estimate an elasticity of substitution among import origins of intermediate goods of 4.38. Incorporating this estimate into a general equilibrium model with nominal rigidities, we calculate that the observed increase in freight costs accounts for 13.3 percent of the inflation rate recorded in the 2019q4-2021q4 period.

Date: 2025-05
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