Gains from Reducing Transport Costs: Essential Transport Policy Suggestions

This paper investigates the gains from reducing international transport costs for 131 countries, considering four major transport modes, namely air, sea, rail, and road. Using the implications of an economic model with multiple transport modes, the potential gains from hypothetically eliminating these costs are estimated. The empirical results suggest that the average country would gain about 3.8% in welfare, with developing economies experiencing larger gains (5.47%) compared to advanced economies (2.89%). Reduction in sea transport costs would contribute the most to these potential gains, followed by air, road, and rail transport costs. As the gains vary significantly across countries, reflecting differences in their reliance on different transport modes, mode-specific transport policies to maximize welfare improvements from reducing international transport costs are discussed in detail.