Advertisement

Review of World Economics

, Volume 154, Issue 4, pp 745–784 | Cite as

Disentangling the impact of infrastructure on trade using a new index of infrastructure

  • Julian DonaubauerEmail author
  • Alexander Glas
  • Birgit Meyer
  • Peter Nunnenkamp
Original Paper
  • 434 Downloads

Abstract

Making use of considerably improved measures of infrastructure, the study assesses the impact of infrastructure on bilateral trade for a panel of 150 developed and emerging economies during the period 1992–2011. The authors make use of a gravity approach to disentangle the impact of infrastructure on trade and trade costs. Improving infrastructure endowments and quality decreases trade costs and increases international trade flows. Countries with improved infrastructure reduce not only bilateral trade costs but also multilateral trade costs. The decomposition of effects indicates that better infrastructure encourages higher export flows relative to domestic trade flows. Main results of the study prove to be robust, also when considering distinct trade categories (consumption goods, intermediates, and capital goods) for a smaller sample.

Keywords

Trade Gravity Infrastructure Transport ICT Energy Finance 

JEL Classification

F14 O18 

References

  1. Agnosteva, D. E., Anderson, J. E., & Yotov, Y. V. (2014). Intra-national trade costs: Measurement and aggregation. National Bureau of Economic Research Working Paper Series 19872.Google Scholar
  2. Allen, T., & Arkolakis, C. (2014). Trade and the topography of the spatial economy. The Quarterly Journal of Economics, 129(3), 1085–1140.CrossRefGoogle Scholar
  3. Anderson, J. E., Larch, M., & Yotov, Y. V. (2015). Estimating general equilibrium trade policy effects: GE PPML. CESifo Working Paper Series No. 5592.Google Scholar
  4. Anderson, J. E., & Van Wincoop, E. (2003). Gravity with gravitas: A solution to the border puzzle. American Economic Review, 93(1), 170–192.CrossRefGoogle Scholar
  5. Anderson, J. E., & van Wincoop, E. (2004). Trade costs. Journal of Economic Literature, 42(3), 691–751.CrossRefGoogle Scholar
  6. Anderson, J. E., & Yotov, Y. V. (2010). The changing incidence of geography. American Economic Review, 100(5), 2157–2186.CrossRefGoogle Scholar
  7. Bernhofen, D. M., El-Sahli, Z., & Kneller, R. (2016). Estimating the effects of the container revolution on world trade. Journal of International Economics, 98(1), 36–50.CrossRefGoogle Scholar
  8. Bougheas, S., Demetriades, P. O., & Morgenroth, E. L. W. (1999). Infrastructure, transport costs and trade. Journal of International Economics, 47(1), 169–189.CrossRefGoogle Scholar
  9. Brülhart, M. (2009). An account of global intra-industry trade, 1962–2006. World Economy, 32(3), 401–459.CrossRefGoogle Scholar
  10. Brun, J.-F., Carrère, C., Guillaumont, P., & de Melo, J. (2005). Has distance died? Evidence from a panel gravity model. World Bank Economic Review, 19(1), 99–120.CrossRefGoogle Scholar
  11. Canning, D. (1998). A database of world infrastructure stocks, 1950–1995. World Bank Economic Review, 12(3), 529–547.CrossRefGoogle Scholar
  12. Cheng, I.-H., & Wall, H. J. (2005). Controlling for heterogeneity in gravity models of trade and integration. Federal Reserve Bank of St. Louis Review, 87(1), 49–63.Google Scholar
  13. Cristea, A. D. (2015). The effect of communication costs on trade in headquarter services. Review of World Economics, 151(2), 255–289.CrossRefGoogle Scholar
  14. Datta, S. (2012). The impact of improved highways on Indian firms. Journal of Development Economics, 99(1), 46–57.CrossRefGoogle Scholar
  15. Donaldson, D. (2018). Railroads of the raj: Estimating the impact of transportation infrastructure. American Economic Review, 108(4–5), 899–934.CrossRefGoogle Scholar
  16. Donaldson, D., & Hornbeck, R. (2016). Railroads and American economic growth: A “market access” approach. The Quarterly Journal of Economics, 131(2), 799–858.CrossRefGoogle Scholar
  17. Donaubauer, J., Meyer, B. E., & Nunnenkamp, P. (2016). A new global index of infrastructure: Construction, rankings and applications. World Economy, 39(2), 236–259.CrossRefGoogle Scholar
  18. Dornbusch, R., Fisher, S., & Samuelson, P. A. (1977). Comparative advantage, trade and payments in a Ricardian model with a continuum of goods. American Economic Review, 67(5), 823–839.Google Scholar
  19. Duranton, G., Morrow, P. M., & Turner, M. A. (2013). Roads and trade: Evidence from the US. The Review of Economic Studies, 81(2), 681–724.CrossRefGoogle Scholar
  20. Eaton, J., & Kortum, S. (2002). Technology, geography, and trade. Econometrica, 70(5), 1741–1779.CrossRefGoogle Scholar
  21. Fally, T. (2015). Structural gravity and fixed effects. Journal of International Economics, 97(1), 76–85.CrossRefGoogle Scholar
  22. Fink, C., Mattoo, A., & Neagu, I. C. (2005). Assessing the impact of communication costs on international trade. Journal of International Economics, 67(2), 428–445.CrossRefGoogle Scholar
  23. Francois, J., & Manchin, M. (2013). Institutions, infrastructure, and trade. World Development, 46, 165–175.CrossRefGoogle Scholar
  24. Ghani, E., Goswami, A. G., & Kerr, W. R. (2014). Highway to success: The impact of the golden quadrilateral project for the location and performance of Indian manufacturing. The Economic Journal, 126(591), 317–357.CrossRefGoogle Scholar
  25. Grubel, H. G., & Lloyd, P. J. (1975). Intra-industry trade: The theory and measurement of international trade with differentiated products. London: Macmillan.Google Scholar
  26. Head, K., & Mayer, T. (2014). Gravity equations: Workhorse, toolkit, and cookbook. In G. Gopinath, E. Helpman & K. Rogoff (Eds.), Handbook of international economics (Vol. 4, 131–195).Google Scholar
  27. Head, K., Mayer, T., & Ries, J. (2010). The erosion of colonial trade linkages after independence. Journal of International Economics, 81(1), 1–14.CrossRefGoogle Scholar
  28. Head, K., & Ries, J. (2010). Do trade missions increase trade? Canadian Journal of Economics/Revue Canadienne d`Economique, 43(3), 754–775.CrossRefGoogle Scholar
  29. Hinz, J. (2017). The view from space: Theory-based time-varying distances in the gravity model. Beiträge zur Jahrestagung des Vereins für Socialpolitik 2017: Alternative Geld- und Finanzarchitekturen—Session: International Trade and Trade Reforms IV, No. E15-V2.Google Scholar
  30. Jacks, D. S., Meissner, C. M., & Novy, D. (2011). Trade booms, trade busts, and trade costs. Journal of International Economics, 83(2), 185–201.CrossRefGoogle Scholar
  31. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2011). The worldwide governance indicators: Methodology and analytical issues. Hague Journal on the Rule of Law, 3(2), 220–246.CrossRefGoogle Scholar
  32. Larch, M., Wanner, J., Yotov, Y. V., & Zylkin, T. (2017). The currency union effect: A PPML re-assessment with high-dimensional fixed effects. Drexel University School of Economics Working Paper 2017-07.Google Scholar
  33. Larch, M., & Yotov, Y. V. (2016). General equilibrium trade policy analysis with structural gravity. WTO Staff Working Paper, No. ERSD-2016-08.Google Scholar
  34. Limão, N., & Venables, A. J. (2001). Infrastructure, geographical disadvantage, transport costs, and trade. World Bank Economic Review, 15(3), 451–479.CrossRefGoogle Scholar
  35. Mayer, T., & Zignago, S. (2011). Notes on CEPII’s distances measures: The GeoDist database. CEPII Working Paper 25.Google Scholar
  36. Miroudot, S., Lanz, R., & Ragoussis, A. (2009). Trade in intermediate goods and services. OECD Trade Policy Working Paper 93. Paris.Google Scholar
  37. Novy, D. (2013). Gravity redux: Measuring international trade costs with panel data. Economic Inquiry, 51(1), 101–121.CrossRefGoogle Scholar
  38. Portugal-Perez, A., & Wilson, J. S. (2012). Export performance and trade facilitation reform: Hard and soft infrastructure. World Development, 40(7), 1295–1307.CrossRefGoogle Scholar
  39. Redding, S. J., & Venables, A. J. (2004). Economic geography and international inequality. Journal of International Economics, 62(1), 53–82.CrossRefGoogle Scholar
  40. Santos Silva, J. M. C., & Tenreyro, S. (2006). The log of gravity. The Review of Economics and Statistics, 88(4), 641–658.CrossRefGoogle Scholar
  41. Straub, S. (2011). Infrastructure and development: A critical appraisal of the macro-level literature. Journal of Development Studies, 47(5), 683–708.CrossRefGoogle Scholar
  42. Timmer, M. P., Dietzenbacher, E., Los, B., Stehrer, R., & de Vries, G. J. (2015). An illustrated user guide to the world input-output database: The case of global automotive production. Review of International Economics, 23(3), 575–605.CrossRefGoogle Scholar
  43. Vijil, M., & Wagner, L. (2012). Does aid for trade enhance export performance? Investigating the infrastructure channel. World Economy, 35(7), 838–868.CrossRefGoogle Scholar
  44. Volpe Martincus, C., Carballo, J., & Cusolito, A. (2017). Roads, exports and employment: Evidence from a developing country. Journal of Development Economics, 125, 21–39.CrossRefGoogle Scholar
  45. Wilson, J. S., Mann, C. L., & Otsuki, T. (2005). Assessing the benefits of trade facilitation: A global perspective. World Economy, 28(6), 841–871.CrossRefGoogle Scholar
  46. Yotov, Y. V. (2012). A simple solution to the distance puzzle in international trade. Economics Letters, 117(3), 794–798.CrossRefGoogle Scholar

Copyright information

© Kiel Institute 2018

Authors and Affiliations

  1. 1.Helmut Schmidt University HamburgHamburgGermany
  2. 2.Heidelberg UniversityHeidelbergGermany
  3. 3.Vienna University of Economics and BusinessViennaAustria
  4. 4.Kiel Institute for the World EconomyKielGermany

Personalised recommendations