Mind the gap! Transport costs and price convergence in the nineteenth century Atlantic economy

Karl Gunnar Persson

European Review of Economic History, 2004, vol. 8, issue 2, 125-147

Abstract: The conventional view asserts that sharply falling transport costs practically closed the transatlantic price gap for grain by the end of the nineteenth century. This article challenges that view on the basis of an analysis of a new data set of weekly wheat prices and freight costs from New York to UK markets. Although transport costs fell, the fall was neither sharp nor dramatic. The extent of the decline in real terms is very sensitive to the choice of deflator. It is argued that if you are assessing the trade-inhibiting effect of transport costs, the ‘freight factor’ approach, using the price of the transported good as deflator, is the appropriate one. Port charges, insurance and marketing costs also fell by the same modest rate and since these costs were almost as large as transport costs, the price gap remained substantial. One implication is that we need to look elsewhere for the causes of the dramatic increase in New World grain exports.

Date: 2004
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