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Determinants of Transport Costs

Determinants of Transport Costs . X.Clark, D.Dollar and A. Micco A. Micco and N. Perez. Framework. Introduction 1-Openness and Growth 2-Trade Barriers (TC and Tariff) 3-TC and Growth Determinants of TC Determinants of Ports Efficiency Sea Ports Regulation in Latin America Conclusion.

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Determinants of Transport Costs

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  1. Determinants of Transport Costs X.Clark, D.Dollar and A. Micco A. Micco and N. Perez

  2. Framework • Introduction 1-Openness and Growth 2-Trade Barriers (TC and Tariff) 3-TC and Growth • Determinants of TC • Determinants of Ports Efficiency • Sea Ports Regulation in Latin America • Conclusion

  3. IntroductionOpenness and Growth (theory) • Positive aspect: 1-Increase variety in consumption patterns 2-Int. capital raise the rate of convergence (B.y SM.95) 3-Diminishing returns doesn’t apply (Ventura 97). 4-Increase market size -input variety- (Romer 90) 5-Increase market size -innovators’ rents- (Schumpeter) 6-International knowledge spillovers (Lucas)

  4. IntroductionOpenness and Growth (theory) • Negative aspects 1-Reallocation of labor from research into production (Grossman and Helpman 1991) 2-International competition can reduce innovators’ monopoly rents (Aghion Howitt 98, Ch.7) 3-Specialization in basic production act. in which there is little scope for accumulation of new knowledge (Young 91)

  5. IntroductionOpenness and Growth (Empiric) • Simple regressions of Ypc on trade share (moderate positive relationship) • Regressions of Ypc on trade policies • Regression of Ypc on trade share instrumenting for share using geographic vars. Frankel and Romer (99)

  6. IntroductionTransport Costs and Trade • Trade liberalization (Δ- tariff & non-tariff barriers). LA simple Avg of weighted tariff in 96 = 10% • Transport Cost as Imports CIF/FOB 8.2%

  7. IntroductionTransport Costs and Trade(For Total Imports -CIF/FOB) Countries with Tariff <Transp. Costs Countries with Tariff >Transp. Costs

  8. IntroductionTransport Costs and Trade(For Exports to the USA -Charges/Val )

  9. IntroductionTransport Cost and Growth • Negative Relation between Growth and TC CIF/FOB from 8% to 16% => Δ- .5% growth (over 20 year) (Radelet & Sachs 1998) • TC can explain 50% of Manufacturing wage variance across countries (70% gdp). (Redding & Venables 2000)

  10. Determinants of Transport Cost • Type of Product (Value/volume , other features) • Trade Imbalance • Geography • Infrastructure (seaport, road, etc.) • Transport Technology (IRS & Container) • Competition and Regulation

  11. Determinants of Transport Cost1- Type of Product The insurance Premium depends on Value/Weight Product’ features affect freight rates

  12. Determinants of Transport Cost2- Trade Imbalance Freight rates for a 20” dry container between Port of Spain (Trinidad and Tobago) and ports in other regions, both for imports and exports (August 2000) Imbalance of Containerized Imports and Export between US and the Caribbean in 1998: 72%

  13. Determinants of Transport Cost 3- Geography (Distance and Landlocked) Mean Cost 4620 Landlocked <=> 10 000 km by sea Limao Venables ( 2000)

  14. Determinants of Transport Cost4a- Infrastructure • Seaport cost in Total Freight Rate (infrastructure and efficiency)

  15. Determinants of Transport Cost4b- Infrastructure (Venables 00) Infrastructure Index = ( (road+rail)/area+telephone )-.3

  16. Determinants of Transport Cost5- Technology • Containers • IRS in vessel and ports (McConville 99 and Fuchsluger 00) • In practice it is related with trade volume (HUB ports) TEU per voyage v/s Total TEU exported to the USA

  17. Determinants of Transport Cost6- Competition and Regulation (McGuire et all 1999) • Restriction on Commercial Presence (Restriction on the movement of the capital) • Other Restriction (Conferences, UN liner code, Cabotage , Port Services) • Concentration

  18. Each pt. Of ”weight" represent 100 000 dwt Between: Valparaíso and Arica/Iquique/Antofagasta 1,4 milion of dwt from which 96% cannot be used because they do not have the Chilean Flag. Jan Hoffmann: Cepal

  19. Maritime TransportPercentage of Maritime Transport Imports in 1998 Exports in 1998 Source: BTI (Cepal)

  20. Maritime Transport CostsData • US Department of Commerce. • Coverage Value, Transport Charges, weight, foreign port, port of unlading in the USA, % in containers, etc. By foreign port and product (6 digit HS) • The US imports more than 50% of all LA exports.

  21. Maritime Transport CostEconometric Model Where: I,i: foreign ctry. and port. J,j: district and port. k: product at 6 dig. HS T,d,q: % Cont., Dist. & Vol. CR: Cargo reservation policy AI Ja : Price-fixing agreements (Conf.) AI Jb : Coop. working agreements (w/o binding rate)

  22. Maritime Transport CostEconometric Model PSIa : index that captures the existence of barriers to the foreign supply of cargo handling services. PSIb : index that measures the extend to which port services (e.g., pilotage, towing, navigation aids) are mandatory for incoming ships. CR: dummy variable indicating whether exporting countries maintain any form of cargo reservation policy for the domestic shipping fleet affecting trade with the US. AI Ja : price-fixing agreements among liner companies en routes between country I and customs district J. AI Jb : cooperative working agreements, that do not have a binding rate, among liner companies en routes between country I and customs district J.

  23. Maritime Transport CostEconomic Model: Modification With foreign GDP as instrument for volume

  24. Maritime Transport Cost

  25. Port Efficiency by Region

  26. Seaport Costs and Port Efficiency • Figure 5 • Handling Costs and Port Efficiency • (Handling Costs Divided by PPP GDPpc 1998)

  27. Seaport Costs and Port Efficiency

  28. Explaining Port Efficiency SGP 6.8 HKG NLD FIN DEU DNK CAN NZL BEL USA ISL FRA SWE NOR JPN ISR AUS GBR ZAF MYS MUS TWN JOR GRC ESP KOR IRL THA TUR Port Efficiency 2000 ECU EGY ARG ITA IDN CHL MEX PRT RUS BGR SVK CHN PER POL SLV BRA IND VEN VNM ZWE PHL COL HUN CRI BOL 1.7 368.535 34724.5 Infrastructure Index

  29. Explaining Port Efficiency

  30. Explaining Port Efficiency

  31. Recent Reforms in LA Seaports • During the 60s: Public Service Ports • development zones (social inv. and jobs) • Inefficient : non-tariff barriers. • lack of fund for investment. • During the 80s: • Technological changes => Δ- L/K (Req. Inv.) • “export-lead growth” Model => Port Efficiency • Debt Crisis => Δ- Subsidies and req. of funds. • During the 90s: The Latin American Model: • Common-use ports are landlord (mono-operator). • Concession are granted for 12-30 years. • New totally private port are allowed. Pressure for Reforms - Tool Ports (Chile)

  32. Recent Reforms in LA SeaportsLessons from Chile Operational reforms have huge impact: Multi-operator system Almost no Investment US$ 200 Required

  33. Recent Reforms in LA SeaportsLessons from Argentina Puerto Nuevo, Buenos Aires

  34. Recent Reforms in LA SeaportsLessons from Brazil and Panama • Labor Reform are important to have an successful reform. • Cabotage is becoming more important (MIT: Manzanillo).

  35. Some Conclusions • TC is an important trade barrier • Infrastructure is an important determinant of TC. In particular for inland transport. • Seaport efficiency is an important determinant of maritime transport cost. (CA -> Singapore) =>Δ- 15% transport cost (+-6,000 miles in distance)

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