Sunday, May 04, 2008

Krugman's lumpy posts on trade

Apologies - a research reminder to myself. This is globalisation at work and raises many questions that need empirical economists to look at more closely. These posts should be of interest to many though as evidenced by the comments to Krugman's posts.

These are Paul Krugman's two posts on shipping costs and trade.

The world is lumpy [NT Times]

In response to this Hummels quote:

Minimum efficient scale in shipping is significant. The capacity of a modern container ship is large relative to the export volumes produced by smaller countries, and there are substantial economies of scope in offering transport services over a network of ports. One way to see this effect is to calculate the number of carriers operating on a particular trade route. In the fourth quarter 2006 one in six importer-exporter pairs world-wide was served by a single direct liner “service”, meaning that only one ship was operating on that route. Over half of importer-exporter pairs were served by three or fewer ships, and in many cases all of the ships on a route were owned by a single carrier

Krugman states correctly in my view:

I know, it’s not world-shaking, but I always think it’s interesting to get a sense of the physical reality of trade, which is a lot less seamless than we tend to think.

His second post puts a little meat on the bones of the first post.

A bit more about lumps [NY Times]

I realized that my previous post didn’t explain why we were talking about shipping and all that. Our conversation concerned an empirical problem with the Eaton-Kortum model of international trade, which was the basis of the big lecture.



Prasad Rao said...

Since the post appears in the 'Globalization and Environment' newsfeed, I might add that policies that seek to abate market power in shipping by requiring additional routes/services/service providers could cause an increase in environmental releases (SOX and particulates to air), and in the case of shipping crude and products, an increase in the risk of oil spills too.

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