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A trade hierarchy of cities based on transport cost thresholds

Jorge Diaz-Lanchas (), Carlos Llano Verduras and José Zofío

No 2019-02, JRC Working Papers on Territorial Modelling and Analysis from Joint Research Centre (Seville site)

Abstract: Empirical evidence is lagging behind in explaining trade agglomerations in short distances. Departing from a novel micro-database on road freight shipments within Spain for the period 2003-2007, we decompose cities (municipal) trade flows into the extensive and intensive margins to assess trade frictions and trade concentration by way of a unique generalized transport cost measure and three internal borders, NUTS-5 (municipal), NUTS-3 (provincial) and NUTS-2 (regional). We discover a stark accumulation of trade flows up to a transport cost value of €189 (170km approx.) and conclude that this high density is not explained by the existence of administrative borders effects but to significant changes in the trade-to-transport costs relationship. To support this hypothesis, we propose and adopt an endogenous Chow test to identify significant thresholds at which trade flows change structurally with distance. These breakpoints allow us to split the sample when controlling for internal borders, and define trade market areas corresponding to specific transport costs values that consistently portrait an urban hierarchical system of cities, thereby providing clear evidence of the predictions made by the central place theory.

Keywords: rhomolo; region; growth; municipal freight flows; generalized transport costs; breakpoints; market areas; urban hierarchy; central place theory (search for similar items in EconPapers)
JEL-codes: F14 F15 O18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-tre and nep-ure
Date: 2019-03
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