Discussion Paper Details

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Title: Geography, Search Frictions and Endogenous Trade Costs

Author(s): Giulia Brancaccio, Myrto Kalouptsidi and Theodore Papageorgiou

Publication Date: July 2017

Keyword(s): Geography, matching function estimation, search frictions, shipping, Trade Costs, Trade Flows, trade imbalances and Transportation

Programme Area(s): Industrial Organization, International Trade and Regional Economics and Macroeconomics and Growth

Abstract: We leverage detailed data on vessel movements and shipping contracts to shed new light on world trade costs and trade flows. The data reveal new facts about shipping patterns, and motivate us to build a framework modeling the behavior of exporters and ships. Our framework has two novel features: (i) trade costs are endogenous and determined jointly with trade flows; as a result, they depend on the entire network of countries; (ii) search frictions between exporters and ships can limit trade. We estimate the model and recover flexibly the matching process between ships and exporters. Endogenous trade costs provide a novel link to understand trade patterns and we showcase this by considering the impact of (i) an improvement in shipping efficiency; (ii) a slow-down in China; (iii) the opening of the Northwest Passage; (iv) search frictions.

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Bibliographic Reference

Brancaccio, G, Kalouptsidi, M and Papageorgiou, T. 2017. 'Geography, Search Frictions and Endogenous Trade Costs'. London, Centre for Economic Policy Research.