International Handbook of Maritime Economics
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International Handbook of Maritime Economics

Edited by Kevin Cullinane

This timely and comprehensive new Handbook brings together an unrivalled group of distinguished scholars and practitioners to provide in-depth analysis and a contemporary perspective on a wide-ranging array of topics in maritime economics.
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Chapter 19: Is Puerto Limon a Real Lemon? Port Inefficiency and its Impact

Paul Kent and Alan Fox


Paul Kent and Alan Fox 19.1 Introduction Recent research has shown how transport inefficiencies affect development, trade success and foreign investment. Hummels (1999) provides evidence of the impact of high transportation costs (determined by distance to source and export markets), on development. Henderson et al. (2001) explore how transport costs influence trade and welfare. Hoffmann and Kumar (2002) show a symbiotic relationship between trade and maritime transport and their interplay with globalization. Other studies show the precise impact of high transport costs. Limao and Venables (2001), for example, show that increasing transport costs by 10 percent can reduce trade volumes by 20 percent; Radelet and Sachs (1998) show that a doubling of shipping costs can slow annual economic growth by about half a percentage point. While these studies illustrate the effect of transport on trade flow patterns and the importance of transport costs to trade success, some use distance as a proxy for transport costs in their analysis. High transport costs, however, can be explained by many other factors, such as lower cargo volumes, trade flow imbalances, inadequate infrastructure, onerous border and cargo processing procedures, and port inefficiencies. Port costs, for example, represent about 8–12 percent of total transport costs from product origin to destination. Shippers, who consider port costs as one of the very few, if not the only, controllable costs in the logistics chain, make shipping decisions in part based on those costs. To the extent that port costs are a proxy for port performance (efficiency), then...

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