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Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs

28 Pages Posted: 11 Jan 2008  

Gilles Duranton

London School of Economics & Political Science (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)

Michael Storper

University of California, Los Angeles (UCLA) - Department of Urban Planning

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Abstract

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.

JEL Classification: D23, R12

Suggested Citation

Duranton, Gilles and Storper, Michael, Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs. Canadian Journal of Economics/Revue canadienne d'économique, Vol. 41, Issue 1, pp. 292-319, February/février 2008. Available at SSRN: https://ssrn.com/abstract=1082611 or http://dx.doi.org/10.1111/j.1365-2966.2008.00464.x

Gilles Duranton (Contact Author)

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
WC2A 2AE London
United Kingdom
+44 20 7955 7604 (Phone)
+44 20 7955 7412 (Fax)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Michael Storper

University of California, Los Angeles (UCLA) - Department of Urban Planning ( email )

Box 951656
Los Angeles, CA 90095
United States

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