Transportation, freight rates, and economic geography

Abstract

We investigate the role of competitive transport markets in shaping the location of economic activity and the pattern of trade. In our model, carriers supply transport services for shipping manufactured goods, and freight rates are set to clear transport markets. Each carrier must commit to the maximum capacity for a round-trip and thus faces a logistics problem as there are opportunity costs of returning empty. These costs increase the freight rates charged to firms located in regions that are net exporters of manufactured goods. Since demand for transport services depends on the spatial distribution of economic activity, the concentration of production in one region raises freight rates to serve foreign markets from there, thus working against specialization and the agglomeration of firms. Consequently, a more even spatial distribution of firms and production prevails at equilibrium when freight rates are endogenously determined than when they are assumed to be exogenous as in the literature.

Density economies and transport geography: Evidence from the container shipping industry

“…Among the literature discussing the impact of endogenous transport costs on economic geography, one additional channel, except the economies of transport density, is the directional imbalance (e.g., Behrens and Picard, 2011;Jonkeren et al, 2011;Takahashi, 2011;Tanaka and Tsubota, 2016), which suggests the positive relation between directional imbalance and transport costs. For example, the container freight index from Shanghai to Los Angeles, or eastbound, is 1,330 USD per TEU in January 2016; however, the index from Los Angeles to Shanghai, or westbound, is 600 USD per TEU only because of less demand (Drewry Shipping Consultants Ltd., 2016).…”

Spatial effects of container ports on production of the leather, bag and shoe industry in Korea

“…Papers on transport development generally emphasise the positive impacts of transport facilities in aggregated terms that can lower transport costs and improve accessibility (Gallup et al, 1999;Limao and Venables, 2001;Harringan and Venables, 2006;Behrens et al, 2009;Jiwittanakulpaisarn et al, 2010;Li and Li, 2013;Tong et al, 2013;Park and Seo, 2016). According to some of the economic geography literature, lower transport costs influence the production decisions of a firm as well as the spatial division of production (Krugman, 1980;Beckmann and Thisse, 1986;Behrens and Picard, 2011). Behrens and Picard (2011) assert that trade imbalances introduce asymmetric freight rates between inbound cargo and outbound cargo, and manufacturing firms may disperse economic activities from a larger country or market to a smaller country or market.…”

“…According to some of the economic geography literature, lower transport costs influence the production decisions of a firm as well as the spatial division of production (Krugman, 1980;Beckmann and Thisse, 1986;Behrens and Picard, 2011). Behrens and Picard (2011) assert that trade imbalances introduce asymmetric freight rates between inbound cargo and outbound cargo, and manufacturing firms may disperse economic activities from a larger country or market to a smaller country or market. Nevertheless, the literature on economic geography seldom investigates a firm's production decision when the transport network in a region changes.…”

“…In general, port development has average positive results; however a specific industry in a region may yield different outcomes. Starting from the vantage point that, in an open economy, transportation matters at decision level on the location of production and with regard to patterns of trade, Krugman (1990) and Behrens and Picard (2011) developed models in which a more even spatial distribution of firms and production occurs when freight rates are considered as endogenous. Krugman (1990) mainly considers market size and transportation costs for each country, and agglomeration in the region where economies of scale are better, whereas Behrens and Picard (2011) focus on the difference in transportation costs in accordance with trade direction, and the possibility of agglomeration in the smaller country due to lower transportation costs to export.…”

Aglomerações produtivas e escolha de modal de transporte: um estudo de caso do setor industrial de São Paulo e Manaus

“…A escolha do modelo está associada à necessidade de considerar variáveis que mudam entre as alternativas dos diferentes modais (por exemplo, custo do frete e transit time) e outras que não mudam e estão associadas às características da empresa e do produto que ela fabrica e vende (por exemplo, tamanho da empresa, região geográfi ca, tipo de produto). A análise explícita da escolha de transporte é um avanço importante, se considerado que a localização da atividade econômica depende fortemente do tipo e do comportamento do setor de transporte que, por sua vez, depende da forma como a atividade econômica se distribui ao longo do espaço Picard, 2011). Conclui-se o trabalho com os comentários fi nais.…”