Is distance a good proxy for transport costs? The case of competing transport modes

Abstract

In this paper, we analyze separately the determinants of maritime transport and road transport costs for Spanish exports to Poland and Turkey (markets for which maritime and road transport are competing modes) and investigate the different effects of these costs on international trade. First, we investigate the extent to which maritime and road transport costs depend on different factors such as unit values, distances, transport conditions, service structures, and service quality. Second, we analyze the relative importance of road and maritime transport costs in comparison with distance measures as determinants of trade flows. The main results of this investigation indicate that real distance is not a good proxy for transportation costs and identify the central variables influencing road and maritime transportation costs: for both modes, transport conditions are strong determinants, whereas efficiency and service quality are more important for maritime transport costs, and geographical distance is more important for road transport. Road and maritime transport costs are central explanatory factors of exports and they seem to deter trade to a greater extent than road or maritime transit time when endogeneity is considered.

Key words:

• Transport costs
• transport mode
• Spanish exports
• international trade

Acknowledgements

The authors would like to thank the participants of the Workshop in International Economics held at the University of Goettingen in March 2006 and the anonymous referees for their helpful comments and suggestions. We also would like to thank the Fundació Valenciaport for providing the data. Financial support from Fundación Caja Castellón-Bancaja, Generalitat Valenciana and the Spanish Ministry of Education is grateful acknowledged (P1-1B2005-33, Grupos 03-151, INTECO; Research Projects GV04B-030, SEJ 2005-01163 and ACOMP06/047).

Notes

¹ International fragmentation of production is defined as the process whereby previously integrated production activities are segmented and spread over an international network of production sites.

² This is especially the case for container transportation since trade imbalances imply the repositioning of empty containers that have to be taken into account in the total transport costs.

³ Air transport is not considered as a substitute for land or water transport because less than 3 per cent of the shipments are transported from Spain to Poland and Turkey by air.

⁴ Formal negotiations started in October 2005.

⁵ It provides a consistent indicator of the value of the exported merchandise.

⁶ Actual kilometres of road travelled.

⁷ The ß coefficients are not shown in order to save space, but are available upon request.

⁸ We performed the Durbin – Wu – Hausman endogeneity test (Table 4), the null hypothesis of which states that an ordinary least squares (OLS) estimator of the same equation would yield consistent estimates: that is, any endogeneity among the regressors would not have deleterious effects on OLS estimates. A rejection of the null indicates that endogenous regressors' effects on the estimates are meaningful, and instrumental variables techniques are required. The test was first proposed by Durbin (1954) and separately by Wu (1973) (his T4 statistic) and Hausman (1978). The results indicate that the null hypothesis is rejected for the transport cost variables in the trade equation. For the trade volume variables in the transport costs equations, the test could not be performed since the required covariance matrix was not positive definite. However, the differences in the coefficients (OLS versus 3SLS) are very small and therefore the causality runs only from transport costs to trade.

⁹ The results are available upon request.