Papers:

Relative Transport Price Movements and US Imports

Abstract: From 1990 to 2000 air transport prices on US imports fell by 14% in absolute terms and by 31-39% relative to ocean transport prices. This paper estimates the impact of the relative price movement on the composition and volume of trade flows. I show that within an industry, imports shipped 10 percent more frequently by air than the industry average grew 2.1-5.3% faster over the decade than the representative industry import. This is equivalent to a tariff reduction of 1-3.7 percent on such goods. Controlling for the endogeneity of transport mode by using geography and goods characteristics reduces these estimates slightly and reveals that the aggregate impact of the price movement divides the world into three groups. Within an industry, trade in goods shipped less frequently by air grows fastest from NAFTA countries. Trade in goods shipped more frequently by air grows fastest from other OECD countries, and this shift in relative transport prices acts as a tax on developing country exports as they tend to be lower value to weight goods. In addition to altering comparative advantage among countries, the relative transport price movement has similar effect within countries. Worldwide the relative price shift redistributes $5b worth of production, or 1.7% of total imports in 2000.

Relative Transport Price Movements and World Trade

Abstract: This paper provides the first direct measurement of the impact of relative transport price shocks on world trade flows. Previous work examined the impact of this shock on US imports over the 1990s. To show that the results generalize to both a longer time period and world trade, I propose a new measure for air suitability. This measure is available for most disaggregated trade datasets, which will allow similar analyses to be performed on firm level data and in other contexts. Utilizing it, I show that within an industry trade in varieties that are more suitable for air transport grew faster from 1975 to 2005, and this growth bonus increased with the distance of the route. This period accords with a near monotonic decline in the relative price of air to ocean transport strongly indicating that the effect is driven by the declining price of air transport. The effect is both statistically and economically significant at the variety level, but has less significance once aggregated to the country level.

Airplanes and Income: A Shrinking World Has No Impact

Abstract:The recent evidence that air transport prices plummeted relative to ocean transport prices over the period 1965-2000 provides an exogenous shock to world trade patterns. Previous papers showed that this relative decrease led to faster trade growth for varieties more suitable for air transport, especially on longer routes. This paper examines the relationship between this trade shock at the country level and changes in real income. Contradicting other work that purports to find such a connection, I show that there is no significant relationship between changes in trade and income growth. This is the first paper to produce long run figures for exogenous trade changes. These are constructed both by direct estimation of the impact of the relative price shift and by a time-varying geographic instrument. By using an exogenous, dynamic trade change, and removing omitted variable concerns, such as institutional capacity, I am able to show that on average increasing trade does not raise the rate of income growth.

Datasets: Sea distance measures (km) in dta or csv format.