Theory of Comparative Advantage: Do Transportation Costs Matter?

Abstract

The paper presents a formal analysis which incorporates returns to transportation into a Ricardian framework to predict trade patterns. The important point to be gained from this analysis is that increasing returns to transportation, coupled with appropriate distances between trading partners can be shown to reverse Ricardian predictions even when there are no international differences in tastes, technology, or factor endowments. Additional gains from trade may emerge from reductions in aggregate delivery costs owing to scale economies.

Trade, globalization and uneven development

“…Geographical economists thus experiment with a variety of other transport costs specifications, and different geographies. They have treated transport costs as a fixed charge rather than an iceberg (Cukrowski and Fischer, 2000; Ottaviano and Thisse, 2004; Tharakan and Thisse, 2002). They have explored ‘density dependent’ transport costs, where the freight rate falls as the amount shipped increases, also embedding two equally accessible regions within two countries trading with on another (Behrens et al, 2003).…”

“…In ‘A spatial theory of trade’, Rossi-Hansberg (2005) reinvents a much earlier geographical research program on location, specialization and trade across continuous space (Beckmann and Puu, 1985; Curry, 1970, 1989). They have explored uneven international geographies, the clustering of countries into continental world regions and preferential trade areas, and differences in national endowments (Cukrowski and Fischer, 2000; Davis and Weinstein, 2003; Rauch, 1999; Venables and Limão, 2002; Villar, 1999). Occasionally, they integrate foreign direct investment with trade, dubbed ‘oligopolistic general equilibrium’ (Markusen, 2002; Neary, 2009).…”

NAFTA or Nada? Trade's Impact on U.S. Border Retailers

“…The HO model holds several restrictive assumptions, including zero transportation costs. Several studies have allowed for non‐zero transportation costs in the estimations of trade impacts and directions, finding that the direction of trade may respond to comparative advantages as well as transportation costs between countries (Cukrowski and Fischer 2000; Hanink and Cromley 2005; Minerva 2007). This finding suggests that HO predictions may change after accounting for distances between countries and the complementary relationships between proximity and the expansion of trade.…”

Shadow Market Area for Air Pollutants

“…In the case of considering such economies of scale, the average transport cost grows to a certain critical point then sinks thereafter. In other words the so-called increasing returns to transportation prevail (Cukrowski and Fischer, 2000). The combined transport (from truck to railway) for the transportation of increased volume can also be more economical, which leads to the changes in the average transportation curve.…”

“…For markets to exist the following eight conditions must be fulfilled, while the extent of fulfilment, in turn, defines the degree of perfection or imperfection of the market mechanism: (a) consumers and producers must be self-interested, maximising utility and profit; (b) institutions must include private property rights and enforcement mechanisms so that the internalisation of external effects (costs and benefits) (3) is safeguarded; (c) there must be supply exclusiveness and demand rivalry (in order to define private versus public goods and to prevent externalities); (d) there must be comparative (1) (continued) In other words, the so-called increasing returns to transportation prevail (Cukrowski and Fischer, 2000). The combined transport (from truck to railway) for the transportation of increased volume can also be more economical, which leads to the changes in the average transportation curve.…”