Access to ports and the welfare gains from domestic transportation infrastructure

Abstract

This paper quantifies the welfare gains from international and intranational trade cost reductions when inner regions of a country access international markets via coastal ports. Improvement in domestic transportation infrastructure reduces trade costs between inner regions and international markets while leaving coastal regions’ international trade costs unaffected. This asymmetric reduction in international trade costs improves inner regions’ global market access and amplifies their welfare gains from trade cost reductions. Our quantitative application to China shows that improved access to coastal ports amplifies the welfare gains for inner regions by 16%, and the effects are more significant for regions farther away from the ports.