Transportation Costs and International Trade in the Second Era of Globalization (David Hummels 2007)

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Introduction:
During the past decades, the international trade experienced a rapid growth with the annual rate of 5.9 percent. This growth in manufacturing trade has been even faster with the annual rate of 7.2 percent. In the era of globalization, one justification of this greedy rise in the world trade could be noted as a considerable decline in the international transportation cost. Improvements in transportation industry not only resulted in the economic effects, but also it brought improvements in the quality of services like higher speed and reliability. In this work, the role of transportation costs in international trade has been studied. Towards this end, a perspective of transporting goods across the borders with the emphasis on air and ocean transportation modes is given, and the associated costs and expenditures are explained. The effects of technology advancement on the transportation modes have been analysed, trends and data have been interpreted, and finally, a regression analysis has been performed in order to make a better justification of data and incorporating compositional changes and technological effects. Discussion:

International trade with neighbours mostly performs by the surface modes, but for nonadjacent partners, most trades transfer via ocean or air. Bulk commodities like oil, petroleum products and grains are mostly transhipped through ocean cargo, while manufacturing and non-bulk-traded goods are transferred in both air and ocean modes. The trends and data on the worldwide trade on ocean and air for non-bulk goods reveal that the quantities of non-bulk cargoes increased over the time, and also this rate of the rise for the air transport is more than the ocean transport. That would be justified as a sharp decline in the relative cost of air transhipment, and its high quality of services in terms of time and reliability. Transportation cost is relative to the value of the good, according to ad-valorem terms, which can be stated as...
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