Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs
London School of Economics & Political Science (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)
University of California, Los Angeles (UCLA) - Department of Urban Planning
Canadian Journal of Economics/Revue canadienne d'économique, Vol. 41, Issue 1, pp. 292-319, February/février 2008
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 that seeks to replicate features from the machinery industry, we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade. The subtle relationship between (endogenous) transport costs and the sensitivity of trade to distance is also explored.
Number of Pages in PDF File: 28
JEL Classification: D23, R12
Date posted: January 11, 2008