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CEP discussion paper
Rising Trade Costs? Agglomeration and Trade with Endogenous Transaction Costs
Gilles Duranton and Michael Storper
April 2005
Paper No' CEPDP0683:
Full Paper (pdf)

JEL Classification: D23; D24; R12

Tags: transaction costs; trade costs; transport costs; agglomeration; vertically linked industries

While transport costs have fallen, the empirical evidence also points at rising total trade costs. In a model of industry location with endogenous transaction costs, we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade.