Measuring Unequal Access to Global Markets through Market Power in the Shipping Industry
Faculty Research Grant
Our project lies at the intersection of three areas of research: industrial organization, international trade, and endogenous growth theory. The aim of the the project is to estimate whether consumers and firms in developing countries face higher costs of shipping and receiving goods abroad due to greater market concentrations among shipping firms in these markets and their subsequent use of market power to extract rents from importing and exporting firms. If correct, transportation costs should not be viewed as some trade limiting exogenous friction, as is commonly assumed in the literature. Rather, transportation costs are endogenous to the characteristics of goods being traded, the market structure of the industry providing shipping services, and the economic policies employed by local/ international agencies. Since shipping costs are also a barrier to trade, they are, like tariffs, amenable to reduction through concerted policy action. The possibility that market concentration in shipping and hence transportation costs are, at least in part, determined by remoteness and vice versa further underscores the need for policy-relevant research. Economic and geographic remoteness, in turn, can affect the extent to which domestic producers of goods and services are competing with foreign substitutes. Arguably, rent-seeking is endemic in many if not most developing countries and suggests that competitive pressure in output markets is quite low. The relationship between remoteness, competition in output (but also factor) markets, and economic growth and development in the form of incentives for innovation and technology adoption is the second focal point of our project. While understanding endogenous growth broadly is beyond the scope of our project, we more narrowly focus on how exogenous (geographic) and endogenous remoteness (rent-seeking in shipping) affect growth and development.