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Regional Economies of Scale in Transportation and Regional Welfare

Author

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  • Alexandre Skiba

    (Department of Economics, The University of Kansas)

Abstract

A discriminatory tariff can be welfare superior to free trade in the presence of regional economies of scale. This is because a tariff on non-regional trade concentrates trade within a region, lowering the cost of transportation, so that the gains from economies of scale can theoretically offset the losses from the tariff. To complement the theoretical point I estimate the relation between transportation cost and regional volume of trade. The estimates suggest that a 10% increase in the volume of trade brings about 2.5% reduction in transportation cost in the long run.

Suggested Citation

  • Alexandre Skiba, 2007. "Regional Economies of Scale in Transportation and Regional Welfare," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 200705, University of Kansas, Department of Economics, revised Sep 2007.
    • Handle: RePEc:kan:wpaper:200705
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    File URL: http://www2.ku.edu/~kuwpaper/2007Papers/200705.pdf
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    References listed on IDEAS

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    6. Jeffrey A. Frankel, 1998. "The Regionalization of the World Economy," NBER Books, National Bureau of Economic Research, Inc, number fran98-1.
    7. Didier Laussel & Raymond Riezman, 2006. "Fixed Transport Costs and International Trade," CESifo Working Paper Series 1764, CESifo.
    8. Mori, Tomoya & Nishikimi, Koji, 2002. "Economies of transport density and industrial agglomeration," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 167-200, March.
    9. Hummels, David, 2001. "Time As A Trade Barrier," Working papers 28701, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
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    Cited by:

    1. Fabien Candau & Florent Deisting & Julie Schlick, 2017. "How Income and Crowding Effects Influence the World Market for French Wines," The World Economy, Wiley Blackwell, vol. 40(5), pages 963-977, May.
    2. Hummels, David & Lugovskyy, Volodymyr & Skiba, Alexandre, 2009. "The trade reducing effects of market power in international shipping," Journal of Development Economics, Elsevier, vol. 89(1), pages 84-97, May.
    3. Rancourt, Marie-Ève & Bellavance, François & Goentzel, Jarrod, 2014. "Market analysis and transportation procurement for food aid in Ethiopia," Socio-Economic Planning Sciences, Elsevier, vol. 48(3), pages 198-219.
    4. Fabien Candau & Florent Deisting & Julie Schlick, 2017. "How Income and Crowding Effects Influence the World Market for French Wines," The World Economy, Wiley Blackwell, vol. 40(5), pages 963-977, May.
    5. Asturias, Jose, 2020. "Endogenous transportation costs," European Economic Review, Elsevier, vol. 123(C).
    6. Behrens, Kristian & Picard, Pierre M., 2011. "Transportation, freight rates, and economic geography," Journal of International Economics, Elsevier, vol. 85(2), pages 280-291.
    7. Joern Kleinert & Julia Spies, 2011. "Endogenous Transport Costs in International Trade," IAW Discussion Papers 74, Institut für Angewandte Wirtschaftsforschung (IAW).

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    More about this item

    Keywords

    regional economies of scale; transportation costs; preferential trade agreements; regional welfare;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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