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On the Impact of Transportation Costs on Trade in a Multilateral World
Author(s) -
Egger Peter
Publication year - 2005
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2005.tb00661.x
Subject(s) - gross domestic product , economics , per capita , gravity model of trade , capital (architecture) , panel data , international economics , production (economics) , product (mathematics) , international trade , bilateral trade , monetary economics , econometrics , macroeconomics , history , population , demography , geometry , mathematics , archaeology , sociology , political science , law , china
This article proposes to account for the differences in the importance of transport costs, depending on characteristics of trading partners. In a multiregion model of trade in differentiated goods we expect a smaller impact of transport costs on a country's exports as a share of importer gross domestic product (GDP) the more (less) relatively capital‐abundant the exporter (importer) is and the lower (higher) production costs are as captured by GDP at given factor endowments and diversity, all else equal. Empirically, this requires four interaction terms in addition to the direct impact of transport costs when estimating log‐linear gravity models: one with the exporter GDP per capita or capital‐labor ratio, a second one with the importer GDP per capita or capital‐labor ratio, and a third and fourth with exporter and importer GDP, respectively. The hypotheses are strongly supported by the evidence from a large panel of bilateral trade between 1970 and 2000.