Skip to main content
Log in

The effect of maritime transport costs on the extensive and intensive margins: Evidence from the Europe–Asia trade

  • Original Article
  • Published:
Maritime Economics & Logistics Aims and scope

Abstract

This article investigates the determinants of maritime trade. It focuses in particular on the extent to which variations in trade-related costs between Asia and Europe help to explain the surge in Euro–Asian trade in eight of the most emblematic categories of products related to Asian success: textiles, footwear, confection, machinery, electronic products, vehicles, furniture and pharmaceutical products. In marked contrast to other studies that focus only on the determinants of total maritime trade, we decompose trade into two margins: the number of different products exchanged (extensive margin) and the average value of each product (intensive margin). We estimate a trade-augmented gravity model with trade cost factors for specific trade flows and industries and for both margins of trade. Several types of trade costs are considered, namely maritime transport costs, time to export/import, behind-the-border trade costs and distances. The main findings indicate that lower freight costs increase aggregate trade values mainly by increasing the average value of imported varieties, but also by increasing the number of products traded. Our findings suggest that political actions aimed at spurring competition and innovation in the maritime transport industry do have an impact on the volume and composition of international trade.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2
Figure 3

Similar content being viewed by others

Notes

  1. We only considered EU15 because of data availability concerning transportation costs.

  2. EU15 stands for: Austria, Belgium, Denmark, France, Finland, Germany, Greece, Ireland, Italy, Luxemburg, the Netherlands, Portugal, Spain, Sweden and United Kingdom. The 15 partners selected are the following: China, Hong-Kong, India, Indonesia, Japan, Malaysia, Philippines, Singapore, South Korea, Thailand, Vietnam, Saudi Arabia, the United Arab Emirates, Brazil and the United States of America.

  3. Iceberg trade costs mean that for each good that is exported a certain fraction melts away during the trip as if an iceberg were shipped across the ocean.

  4. Varieties refer to different products that are substitutes in consumption.

  5. The CES assumption is made in order to obtain a simple model that is easily derived and with testable implications.

  6. Distances between capital cities are considered.

  7. Cost to import and export is defined as: ‘the fees levied on a 20-foot container in US dollars. All the fees associated with completing the procedures to export or import the goods are taken into account, including costs for documents, administrative fees for customs clearance and inspections, customs broker fees, port-related charges and inland transport costs. The cost does not include customs tariffs and duties or costs related to sea transport and only official costs are recorded.’ www.doingbusiness.org/methodology/trading-across-borders.

  8. Results for sectors 30 and 94 are not shown. They are available upon request from the authors.

  9. Results available upon request from the authors.

References

  • Anderson, J.E. and van Wincoop, E. (2003) Gravity with gravitas: A solution to the border puzzle. American Economic Review (American Economic Association) 93 (1): 170–192.

    Google Scholar 

  • Anderson, J.E. and van Wincoop, E. (2004) Trade costs. Journal of Economic Literature 42 (3): 691–751.

    Article  Google Scholar 

  • Baldwin, R. and Taglioni, D. (2006) ‘Gravity for Dummies and Dummies for Gravity Equations’, NBER Working Papers 12516. Cambridge, MA: National Bureau of Economic Research.

  • Behrens, K. and Picard, P.M. (2011) Transportation, freight rates, and economic geography. Journal of International Economics 85 (2): 280–291.

    Article  Google Scholar 

  • Clark, D.P. (2007) Distance, production and trade. Journal of International Trade and Economic Development 16 (3): 359–371.

    Article  Google Scholar 

  • Feenstra, R. and Kee, H.L. (2004) On the measurement of product variety in trade. American Economic Review 94 (2): 145–149.

    Article  Google Scholar 

  • Hillberry, R. and Hummels, D. (2008) Trade responses to geographical frictions: A decomposition using micro-data. European Economic Review 52 (3): 527–550.

    Article  Google Scholar 

  • Hummels, D. and Skiba, A. (2004) Shipping the good apples out? An empirical confirmation of the alchian-allen conjecture. Journal of Political Economy 112 (6): 1384–1402.

    Article  Google Scholar 

  • Hummels, D. and Klenow, P.J. (2005) The variety and quality of a nation’s exports. American Economic Review 95 (3): 704–719.

    Article  Google Scholar 

  • Hummels, D.L. and Schaur, G. (2013) Time as a trade barrier. American Economic Review, American Economic Association 103 (7): 2935–2959.

    Article  Google Scholar 

  • Korinek, J. (2008) Clarifying trade costs in maritime transport. Organization for Economic Co-operation and Development TAD/TC/WP (2008)10.

  • Korinek, J. (2009) Maritime transport costs and their impacts on trade. Organization for Economic Co-operation and Development TAD/TC/WP(2009)7.

  • Limao, N. and Venables, A.J. (2001) Infrastructure, geographical disadvantage, transport costs and trade. World Bank Economic Review 15 (3): 451–479.

    Article  Google Scholar 

  • Martínez-Zarzoso, I., García-Menendez, L. and Suárez-Burguet, C. (2003) The impact of transport cost on international trade: The case of spanish ceramic exports. Maritime Economics & Logistics 5 (2): 179–198.

    Article  Google Scholar 

  • Martinez-Zarzoso, I. and Suarez-Burguet, C. (2005) Transport costs and trade: Empirical evidence for Latin American imports from the European union. The Journal of International Trade & Economic Development, Taylor & Francis Journals 14 (3): 353–371.

    Article  Google Scholar 

  • Martinez-Zarzoso, I. and Nowak-Lehmann, D.F. (2007) Is distance a good proxy for transport costs? The case of competing transport modes. Journal of International Trade and Economic Development 16 (3): 411–434.

    Article  Google Scholar 

  • Martinez-Zarzoso, I., Perez-Garcia, E.M. and Suarez-Burguet, C. (2008) Do transport costs have a differential effect on trade at the sectoral level? Applied Economics, Taylor & Francis Journals 40 (24): 3145–3157.

    Google Scholar 

  • Martinez-Zarzoso, I. (2009) On transport costs and sectoral trade: Further evidence for Latin-American imports from the European Union. In: G. Tondl (ed.) European Community Studies Association of Austria Publication Series. Vienna, New York: Springer-Verlag.

    Google Scholar 

  • Martínez-Zarzoso, I., Nowak-Lehmann, F.D., Klasen, S. and Larch, M. (2005) Does German development aid promote German exports? German Economic Review, Verein für Socialpolitik 10: 317–338.

    Article  Google Scholar 

  • Martinez-Zarzoso, I. and Wilmsmeier, G. (2010) International transport costs and the margins of Intra-Latin American trade. Aussenwirtschaft 65: 49–71.

    Google Scholar 

  • Melitz, M.J. (2003) The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, Econometric Society 71 (6): 1695–1725.

    Article  Google Scholar 

  • Sánchez, R.J., Hoffmann, J., Micco, A., Pizzolitto, C.V., Sgut, M. and Wilmsmeier, G. (2003) Port efficiency and international trade: Port efficiency as a determinant of maritime transport costs. Maritime Economics & Logistics 5 (2): 199–218.

    Article  Google Scholar 

  • Wilmsmeier, G. and Hoffmann, J. (2008) Liner shipping connectivity and port infrastructure as determinants of freight rates in the Caribbean. Maritime Economics & Logistics 10 (1–2): 130–151.

    Article  Google Scholar 

  • Wilmsmeier, G. and Martínez-Zarzoso, I. (2010) Determinants of maritime transport costs: A panel data analysis for Latin American trade. Transportation Planning and Technology 33 (1): 105–121.

    Article  Google Scholar 

Download references

Acknowledgements

The authors would like to thank an anonymous referee and the editor for their very helpful comments and suggestions and gratefully acknowledge the financial support received from the research project (ECO2010–15863) granted by the Spanish Ministry of Science and Innovation.

Author information

Authors and Affiliations

Authors

Appendix

Appendix

Table A1

Table A1 Categories used in the analysis

Rights and permissions

Reprints and permissions

About this article

Cite this article

Bensassi, S., Martinez-Zarzoso, I. & Suárez, C. The effect of maritime transport costs on the extensive and intensive margins: Evidence from the Europe–Asia trade. Marit Econ Logist 16, 276–297 (2014). https://doi.org/10.1057/mel.2014.3

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/mel.2014.3

Keywords

Navigation