Infrastructure, Geographical Disadvantage, and Transport Costs

41 Pages Posted: 20 Apr 2016

See all articles by Nuno Limão

Nuno Limão

University of Maryland - Department of Economics

Anthony J. Venables

University of Oxford; Centre for Economic Policy Research (CEPR)

Date Written: December 1999

Abstract

The median landlocked country has only 30 percent of the trade volume of the median coastal economy. Halving transport costs increases that trade volume by a factor of five. Improving the standard of infrastructure from that of the bottom quarter of countries to that of the median country increases trade by 50 percent. Improving infrastructure in Sub-Saharan Africa is especially important for increasing African trade.

Limao and Venables use three different data sets to investigate how transport depends on geography and infrastructure. Landlocked countries have high transport costs, which can be substantially reduced by improving the quality of their infrastructure and that of transit countries.

Analysis of bilateral trade data confirms the importance of infrastructure. Limão and Venables estimate the elasticity of trade flows with regard to transport costs to be high, at about -2.5. This means that: · The median landlocked country has only 30 percent of the trade volume of the median coastal economy. · Halving transport costs increases the volume of trade by a factor of five. · Improving infrastructure from the 75th to the 50th percentile increases trade by 50 percent.

Using their results and a basic gravity model to study Sub-Saharan African trade, both internally and with the rest of the world, Limao and Venables find that infrastructure problems largely explain the relatively low levels of African trade.

This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to investigate the effects of geography on economic performance. The authors may be contacted at ngl4@columbia.edu or avenables@worldbank.org.

Suggested Citation

Limão, Nuno and Venables, Anthony J., Infrastructure, Geographical Disadvantage, and Transport Costs (December 1999). World Bank Policy Research Working Paper No. 2257. Available at SSRN: https://ssrn.com/abstract=629195

Nuno Limão (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-7842 (Phone)
301-405 3542 (Fax)

Anthony J. Venables

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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