Worth its Weight in Gold: Product Weight, International Shipping, and Patterns of Trade

Ahmad Lashkaripour ()
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Ahmad Lashkaripour: Indiana University

No 2015-014, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: Trade theory relies heavily on the classic iceberg trade cost assumption, but empirical studies have generally rejected it. These studies, however, overlook variations in product weight. Utilizing detailed trade data, I show that unit weight varies widely even within narrowly defined categories, and increases systematically with unit value. I develop and estimate a model of international transportation that accommodates these patterns. Two remarkable results emerge: First, I find strong empirical support for the iceberg assumption. Specifically, a 10% increase in the price of an item increases the shipping cost by 9.5%. More than 80% of this effect is driven by product-weight. Second, even when facing iceberg (ad-valorem) shipping costs, countries tend to export heavier and higher-priced items to faraway locations. This pattern cannot be explained with the classic Alchian-Allen conjecture. I show that, instead, it is driven by specialization across markups.

Pages: 43 pages
Date: 2015-09
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (3)

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