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THE WORLD BANK ECONOMIC REVIEW, VOL. 15, NO. 3, 451-479
© 2001 International Bank for Reconstruction and Development / The World Bank

Article

Infrastructure, Geographical Disadvantage, Transport Costs, and Trade

Nuno Limão and Anthony J. Venables

Department of Economics at Columbia University, ngl4{at}columbia.edu
The Department of Economics at London School of Economics and the Center for Economic Policy Research. a.j.venables{at}lse.ac.uk

Abstract

The authors use different data sets to investigate the dependence of transport costs on geography and infrastructure. Infrastructure is an important determinant of transport costs, especially for landlocked countries. Analysis of bilateral trade data confirms the importance of infrastructure and gives an estimate of the elasticity of trade flows with respect to the trade cost factor of around –3. A deterioration of infrastructure from the median to the 75th percentile raises transport costs by 12 percentage points and reduces trade volumes by 28 percent. Analysis of African trade flows indicates that their relatively low level is largely due to poor infrastructure.


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