Conferences at Department of Economics, University of Toronto, RCEF 2012: Cities, Open Economies, and Public Policy

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The Importance of Transport Costs: Evidence from the Trans-Atlantic Iron Trade, 1870-1913.

Kris Inwood*, Ian Keay

Last modified: 2012-07-10


We use newly compiled evidence on effective transport costs from the trans-Atlantic iron trade to investigate the relationship between trade costs and trade volumes. Like other empirical work on British trade during the late nineteenth and early twentieth centuries, we find a surprisingly weak correlation between ocean freight rates and export quantities. Despite sharply falling trans-Atlantic shipping costs, export  volumes stagnated and Britain's role in North America's iron markets declined. However, when we carefully control for endogenous shipping costs, tariffs and prices, and account for the full range of transport costs that affect trade, including overland transport costs, insurance,  wharfage and brokerage fees for both final goods and raw material inputs, the importance of transportation reasserts itself. We find that effective transport costs had a strong and underappreciated impact on the total tonnage shipped.

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