Professor Wang Yongjin: Port Congestion, Endogenous Trade Cost and China’s Gains from International Trade

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The paper “Port Congestion, Endogenous Trade Cost and China’s Gains from International Trade” co-authored by Professor Wang Yongjin and doctoral student Yang Lu of our school has been published in The Journal of World Economy, Volume No.46, 9th issue of 2023.

In recent years, port congestion and soaring ocean freight rates have been severely hampering Chinese firms’ participation in international trade. For this reason, the 2022“Government Work Report” clearly set out the task of“strengthening the construction of rail, road, air, maritime transport and port infrastructure networks, and ensuring the safety of the different transportation systems”. However, the existing literature still treats the cost of international trade as contributing exogenously. This paper instead incorporates cross-border transport bottlenecks into the framework of Eaton, Kortum and Kramarz (2011) (EKK) and re-evaluates China’s gains from international trade. Estimating the model using the simulated method of moments (SMM), it examines how the counterfactual decrease in trade barriers affects Chinese firms with endogenously and exogenously determined transportation costs. The results indicate that the endogenous cost of transportation acts as a “buffer”effect against the exogenous shock of trade; the increase in demand for export transportation, which leads to an increase in export costs and an improvement in the quality of exported products, offsets some of the gains from trade liberalization. A fall of 10% in trade barriers also endogenously causes a direct loss of USD 156 billion due to an increase in ocean freight rates, accounting for 1.7% of total exports.

Founded in 1978, The Journal of World Economy is jointly sponsored by China Society of World Economics and the Institute of World Economics and Politics, Chinese Academy of Social Sciences. It is one of the earliest world economic publications in China, and is also recognized as a top-level economics journal by Chinese universities and institutes.