HIST363: Global Perspectives on Industrialization

One change that has received a great deal of attention as a potential cause of greater developing country participation in world trade in manufactures is falling costs of communication and transport. In many cases, manufactures are much more dependent on transport, and particularly liner shipping costs, than resource production and exports. It is very clear that communication costs have fallen dramatically in recent years, and that new technologies (eg fax and, subsequently, email and the world wide web) for communication have greatly increased the ability of firms to co-ordinate activities undertaken at distant locations. Transport costs have also fallen in many, although not all, cases.

The cost of transport has been shown to have a major impact on trade flows. Limão and Venables find that halving transport costs increases trade volumes by a factor of five. They also find that freight costs vary enormously depending on the quality of infrastructure and whether a country is land-locked or not. Amjadi and Yeats find that transport costs are particularly high in Africa, and have increased as a share of export value since 1970. Using a model based on trade in manufactures, Redding and Venables show that transport costs for trade in output and intermediate inputs can be profoundly important for poverty in developing countries that are integrated into world trade in manufactures. They conclude that up to 70 percent of the variation in incomes between countries can be explained by such geographical factors. 

It is widely believed that the costs of ocean shipping have fallen dramatically, and that this has been a major factor contributing to globalization. However, as in some earlier episodes of globalization, changes in  shipping rates have been anything but consistent over the period since 1950. Hummels concludes that liner shipping rates increased by over 50 percent between 1954 and 1983, although they declined substantially after 1985 to bring them back close (in real US dollar terms) to their 1954 level.  Other costs that depend on infrastructure quality, such as port charges, the costs of clearing customs, and internal freight costs, frequently exceed the cost of ocean freight by a multiple of two or three and whether they have declined or not varies greatly depending on the regulatory environment in individual countries. Hummels finds that time costs appear to have an impact equivalent to very high transport costs, with every day saved in shipping time equal to a cost saving of 0.8 per cent ad valorem. 

Given the great importance of transport costs for income levels and for economic development it seems clear that reform of maritime shipping services should be a high priority in future negotiations. Even though reform in this area has proved very difficult under the multilateral system in the past, there seems to be an enormous opportunity to make progress that would be important for developing countries in the future. Such progress could be particularly important for African developing countries, which face disproportionately high transport costs.