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The Round Trip Effect: Endogenous Transport Costs and International Trade
June 15, 2017DECRG Kuala Lumpur Seminar Series

This paper studies transport costs as market outcomes and highlights the round trip effect, a key feature of the transportation industry that links transport supply between locations. Incorporating transportation into an Armington trade model, I show that this effect mitigates shocks on a country's trade with its partner and generates spillovers onto its opposite direction trade with the same partner. A country's import tariffs can therefore translate into a potential tax on its exports to the same partner.

Using novel container freight rates data, I develop an instrumental variable based on this effect to estimate the containerized trade elasticity with respect to freight rates. Using my elasticity estimates as well as my trade and transportation model, I simulate a counterfactual increase in US import tariffs on all its partners. This tariff increase not only decreases overall US imports but also US exports on the same bilateral routes. A model with exogenous transport costs would over-predict the fall in US imports by 37 percent and fail to capture the associated bilateral reduction in US exports.

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  • Woan Foong Wong

    Assistant Professor at the Department of Economics, University of Oregon
    Woan Foong Wong is an Assistant Professor in the Economics Department at the University of Oregon. Her research field is international trade, with a focus on factors that impede and facilitate trade flow. A Malaysian native, Woan Foong received her PhD in Economics from the University of Wisconsin-Madison. Prior to graduate school, she worked as a Research Analyst at the Peterson Institute for International Economics after receiving dual degrees in Economics and Music Composition from Oberlin College and Conservatory of Music.
  • WHEN: Thursday, June 15, 2017; 12:30-2:00PM
  • WHERE: World Bank Malaysia Office, Level 3, Sasana Kijang, No. 2, Jalan Dato’ Onn
  • RSVP: Kindly RSVP by Wednesday, June 14, 2017