The Role of Transportation Costs in Trade and Wages

Landefeld, Paul Steven, Department of Economics, University of Virginia
Harrigan, James, Department of Economics, University of Virginia
McLaren, John, Department of Economics, University of Virginia
Sekhri, Sheetal, Department of Economics, University of Virginia
Venkatesan, Rajkumar, Darden Graduate School of Business, University of Virginia

This dissertation addresses two important questions in international trade. First, do declining transportation costs at the industry level act as a determinant of trade flows? Second, what is the effect of falling trade costs on wages and how does it differ for workers in offshorable Versus less offshorable jobs? To address these issues empirically, I create new measures of transportation costs for imports which provide exogenous, industry level Variation in costs. A number of recent papers establish that cross country differences in transportation costs are important determinants of bilateral trade, but my work is unique in focusing on industry - level trade flows. I conclude that declines in transportation costs were responsible for a 17-35 0ncrease in imports from 1989-2003. This result suggests that my transportation cost indexes provide exogenous variation in trade flows that is valuable to researchers interested in the effect of industry - level trade flows on workers and firms. I also develop new measures offshorability which I use to test the prediction that falling transport costs decrease the relative wage of highly offshorable occupations by exposing them to foreign competition. I find that established measures of offshorability based on face - to - face content of jobs produce counterintuitive results. I create a new measure of offshorability that also incorporates the concept of routineness. This index leads to more sensible estimates, suggesting that declining transportation costs from 1989-2003 reduced the relative wages of offshorable workers by about 5%. My results indicate that commonly used measures that focus on face - to - face job requirements miss an important dimension of offshorability. By focusing on transport costs, I address endogeneity issues plaguing earlier work on the effect of trade on wages. My work contributes to the literature on trade and wages by providing a new source of exogenous Variation in trade costs and import levels. I show that one of the most commonly cited concepts of offshorability is incomplete and provide a measure which performs better empirically. In addition, I find that transport costs are an important driver of both imports and relative wages.

Note: Abstract extracted from PDF file via OCR

PHD (Doctor of Philosophy)
All rights reserved (no additional license for public reuse)
Issued Date: