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The Role of Direct Flights in Trade Costs

Demet Yilmazkuday and Hakan Yilmazkuday

No 1604, Working Papers from Florida International University, Department of Economics

Abstract: Effects of direct flights on trade costs are investigated using micro price data at the city level. After controlling for local retail/distribution costs, traded input prices are obtained to be further used in the measurement of trade costs across cities through arbitrage conditions. The existence of a direct flight enters trade costs regressions negatively and significantly. The results are shown to be robust to the consideration of many control variables, nonlinearities in the effects of distance on trade costs, possible endogeneity of having direct flights between cities and alternative definitions of the data. The direct flights that are shown to be determined by bilateral air services agreements are further shown to reduce trade costs through an endogeneity analysis; the main policy implications are twofold: (i) international trade policies through aviation services, such as Open Skies Agreements of the U.S., are alternative trade policy tools to reduce international trade barriers; (ii) direct flights facilitate the integration of internal markets as in the case of European Union.

Keywords: Market Integration; Trade Costs; Direct Flights; Border Effects (search for similar items in EconPapers)
JEL-codes: F15 F31 L93 L98 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016-08
New Economics Papers: this item is included in nep-int and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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https://economics.fiu.edu/research/pdfs/2016_working_papers/1604.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: The role of direct flights in trade costs (2017) Downloads
Working Paper: The role of direct flights in trade costs (2014) Downloads
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