DP4933 Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs

Author(s): Gilles Duranton, Michael Storper
Publication Date: February 2005
Keyword(s): agglomeration, trade costs, transaction costs, transport costs, vertically linked industries
JEL(s): D23, D24, R12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4933

While transport costs have fallen, the empirical evidence also points at rising total trade costs. In a model of industry location with endogenous transaction costs, we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade.