TIME AS A TRADE BARRIER David Hummels Presentation by Cyril Scherneau

OUTLINE 1. Introduction 2. Estimation Strategy and Dataset 3. Results 4. Conclusion

INTRODUCTION International trade implies moving goods: - 2-3 weeks for a container to go from Europe to US midwest - One day or less for air shipping but more expensive What specific costs does shipping time impose on trade ? What is the magnitude of these costs ? What are the effects of time on patterns of trade and the international organization of production ?

Willingness to pay for time saving (fresh products, vertical specialization) Comforted by a relative decline of air shipping rates Check for the trade-off between fast but expensive air transportation and slow but inexpensive sea shipping

Estimation Strategy and Dataset We use an equation of total cost of the delivered good Air shipping is chosen if Rearranging

With the time cost The ad-valorem equation is

Econometric specifications : We use a probit model with For location And For transport mode choice

Dataset: Construction of a matrix of shipping time from www.shipguide.com Data on modal choice are taken from the US Census “Imports of Merchandise” from 1974-1998

Results For SITC 0-4 trade is observed for 20% of observations, 50% for SITC 5-8 Air rates are typically 2.5 times higher than ocean rates and are equal to 25% of the value of the good

Increasing shipment length reduces the probability of trade by 1% in average per day But the effect of distance is reversed and increasing in distance of 1000km increases the probability of exporting to the US by 0.02%

The estimated time cost for SITC 7 and 8 on average is equal to 0 The estimated time cost for SITC 7 and 8 on average is equal to 0.8% per day, so for a 20 day ocean journey the cost is equal to a 16% tariff on these goods

Conclusion This paper doesn’t take into account landlocked countries The results on transport mode choice and location will be affected by the opening of the northern sea route How the trade growth will be affected ?