Woan Foong Wong (University of Wisconsin-Madison) will present:
"The Round Trip Effect: Endogenous Transport Costs and International Trade"
at 12:00 pm on Tuesday, October 25, 2016 in Alperin (Murdough)

Woan Foong will be in Hanover from Tuesday, Oct. 25 to Friday, Oct. 28 and will be emailing people individually to set up appointments.

Abstract

Transportation facilitates trade but is often treated as exogenous to trade, symmetric, and time-invariant. This paper studies transport costs as a market outcome and highlights the round trip effect, a feature of the transportation industry which links transport supply between locations on major routes. Using novel data on port-level container freight rates matched with containerized trade, I introduce three stylized facts on how freight rates, distance, and trade are related in the presence of this effect. I utilize this effect to develop an instrumental variable to estimate the containerized trade elasticity with respect to freight rates. Incorporating transportation into a trade model, I show that this effect will mitigate any shocks on a country's trade with its partner and generate spillovers between a country's imports from and exports to the same partner, translating a country's import tariffs into a potential tax on its exports. Using my trade elasticity estimates, I simulate a counterfactual increase in US import tariffs to all its partners. This tariff increase not only decreases overall US imports but also US exports on the same bilateral routes. An exogenous transport cost model without the round trip effect would over-predict the fall in US imports and fail to capture the associated reduction in US exports at the bilateral route level.

Rick Rielly | Academic Coordinator
Tuck School of Business at Dartmouth
100 Tuck Hall | Hanover, NH 03755-9000
P: 603-646-0163
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