Transportation, freight rates, and economic geography

Kristian Behrens () and Pierre Picard

No 2008040, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We investigate the role of the transport sector in structuring the location of economic activity within two-region economic geography models of the footloose capital and core-periphery types. In our setting, competitive carriers offer transport services for shipping manufactured goods across regions and freight rates are determined endogenously to clear transport markets. Each carrier commits to the maximum capacity for a round-trip and thus faces a simple logistic problem: there are costs associated with 'returning empty', and those costs increase the freight rates charged to manufacturing firms. Since demand for transport services depends on the spatial distribution of economic activity, agglomeration in one region raises freight rates to serve foreign markets, thus generating an additional dispersion force. We show that a more equal equilibrium distribution of firms prevails when freight rates are endogenously determined than when they are exogenous and that multiple equilibria (including partial agglomeration) usually coexist.

Keywords: transport sector; freight rates; economic geography; trade. (search for similar items in EconPapers)
JEL-codes: F12 R12 (search for similar items in EconPapers)
Date: 2008-07-01
New Economics Papers: this item is included in nep-geo and nep-int
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Transportation, freight rates, and economic geography (2011)
Working Paper: Transportation, freight rates, and economic geography (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2008040

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