Infrastructure’s Role in Lowering Asia’s Trade Costs

Infrastructure’s Role in Lowering Asia’s Trade Costs

Building for Trade

ADBI series on Asian Economic Integration and Cooperation

Edited by Douglas H. Brooks and David Hummels

This book analyses and draws policy implications from infrastructure’s central role in lowering Asia’s trade costs.

Chapter 3: Trade Infrastructure and Trade Costs: A Study of Selected Asian Ports

Jon Haveman, Adina Ardelean and Christopher Thornberg

Subjects: asian studies, asian development, development studies, asian development, development economics, economics and finance, development economics


Jon Haveman, Adina Ardelean and Christopher Thornberg 1. INTRODUCTION For many years, research in international trade focused primarily on environments without costs to trade. Recently, trade costs have become increasingly important in explaining the rapid growth of world trade. A growing literature on trade costs has focused on lower tariffs, declining ocean and air transport costs, and the revolution in information technology as potential explanations for the rise in international trade over the last five decades. Transport costs are an important part of trade costs, being at least as large as or even larger than tariffs.1 Transport costs typically include the costs of loading/unloading, insuring and moving the goods from the origin to the destination. These explicit costs are typically expressed in ad valorem terms: a percentage change in the delivered price after paying for freight and insurance. Goods move across borders by various modes of transportation. Trade between neighbouring countries represents 23 per cent of world trade and mostly takes place through surface modes such as rail, truck, or pipeline. The rest of world trade takes place by air or by ocean (Hummels, 2007). The technological developments in ocean and air shipping have been the focus of research that tries to understand their impact on the size and pattern of international trade in the last five decades. The introduction of containerization in ocean shipping has been thought to be the most significant innovation in this area in the last century because it generates cost savings by...

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