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

Introduction Openness 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)

Introduction Openness 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)

Introduction Openness 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)

Introduction Transport 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%

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

Introduction Transport Costs and Trade (For Exports to the USA -Charges/Val )

Introduction Transport 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)

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

Determinants of Transport Cost 1- Type of Product The insurance Premium depends on Value/Weight Product’ features affect freight rates

Determinants of Transport Cost 2- Trade Imbalance Imbalance of Containerized Imports and Export between US and the Caribbean in 1998: 72% 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)

Determinants of Transport Cost 3- Geography ( Distance and Landlocked ) Limao Venables ( 2000) Mean Cost 4620 Landlocked km by sea

Determinants of Transport Cost 4a- Infrastructure Seaport cost in Total Freight Rate (infrastructure and efficiency)

Determinants of Transport Cost 4b- Infrastructure ( Venables 00 ) Infrastructure Index = ( (road+rail)/area+telephone ) -.3

Determinants of Transport Cost 5- Technology IRS in vessel and ports (McConville 99 and Fuchsluger 00) In practice it is related with trade volume (HUB ports) Containers TEU per voyage v/s Total TEU exported to the USA

Determinants of Transport Cost 6- 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

Each pt. Of ”weight" represent 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

Maritime Transport Percentage of Maritime Transport Imports in 1998Exports in 1998 Source: BTI (Cepal)

Maritime Transport Costs Data 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.

Maritime Transport Cost Econometric 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 A I J a : Price-fixing agreements (Conf.) A I J b : Coop. working agreements (w/o binding rate)

Maritime Transport Cost Econometric Model PS I a : index that captures the existence of barriers to the foreign supply of cargo handling services. PS I b : 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. A I J a : price-fixing agreements among liner companies en routes between country I and customs district J. A I J b : cooperative working agreements, that do not have a binding rate, among liner companies en routes between country I and customs district J.

Maritime Transport Cost Economic Model: Modification With foreign GDP as instrument for volume

Maritime Transport Cost

Port Efficiency by Region

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

Seaport Costs and Port Efficiency

Explaining Port Efficiency Port Efficiency 2000 Infrastructure Index USA CAN MEX SLV CRI COL VEN ECU PER BOL CHL BRA ARG ISL SWENOR FINDNK GBR IRL NLD BEL FRA DEU SVK HUN POL RUS ESP PRT ITA GRC BGR TUR ISR JOR IND THA VNM MYS SGP IDN PHL CHN KOR HKG TWN JPN AUS NZL EGY MUS ZAF ZWE

Explaining Port Efficiency

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 years. –New totally private port are allowed. Pressure for Reforms - Tool Ports (Chile)

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

Recent Reforms in LA Seaports Lessons from Argentina Puerto Nuevo, Buenos Aires

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

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)