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Geography, Search Frictions and Endogenous Trade Costs

Giulia Brancaccio, Myrto Kalouptsidi and Theodore Papageorgiou

No 23581, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we study the role of the transportation sector in world trade. We build a spatial model that centers on the interaction of the market for (oceanic) transportation services and the market for world trade in goods. The model delivers equilibrium trade flows, as well as equilibrium trade costs (shipping prices). Using detailed data on vessel movements and shipping prices, we document novel facts about shipping patterns; we then flexibly estimate our model. We use this setup to demonstrate that the transportation sector (i) implies that net exporters (importers) face higher (lower) trade costs leading to misallocation of productive activities across countries; (ii) creates network effects in trade costs; and (iii) dampens the impact of shocks on trade flows. These three mechanisms reveal a new role for geography in international trade that was previously concealed by the common assumption of exogenous trade costs. Finally, we illustrate how our setup can be used for policy analysis by evaluating the impact of future and existing infrastructure projects (e.g. Northwest Passage, Panama Canal).

JEL-codes: F1 F14 L0 L91 R4 R41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2017-07
Note: EFG IO ITI
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