“Time, Transport Type, and Trade Elasticity”

Chu Ping Lo, National Taiwan University

This paper presents a simple model to help explain why the worldwide use of airborne cargo has grown much faster than that of ocean-borne cargo. In this model, firms not only choose their trade pattern based on their productivities, but also choose transport type of either air or ocean shipping based on the value attached to timely delivery. We argue that firms using air transport benefit with more sales than firms shipping by ocean after trade liberalization. This model also provides a new way to estimate trade elasticity, that we use to estimate China’s trade elasticity as θ=6.73  (if σ =6.56).