Does it matter how we ship the good apples out? On specific tariffs, transport modes, and agricultural export prices

Abstract

AbstractFree‐on‐board (FOB) export prices for identical products from the same origin often differ across destinations, even when accounting for the trade costs and attributes of the destination country. One explanation for this observed price difference is per‐unit trade costs, and the ability of exporters to vary their markups and/or product quality. Using a novel dataset that details trade flows between countries by mode of transport, we estimate the transport mode‐specific effect of a per‐unit trade cost, specifically specific tariffs, on the FOB export prices of agricultural products. We find an elasticity of specific tariffs to export prices of 1.8%. However, the estimates are heterogeneous across modes of transport. The elasticity of specific tariffs to export prices is 2% for air transport, 5% for road transport, and .3% for sea cargo. Since the observed positive export price effect can reflect product quality differences or markups, we account for the quality element and find that for a given product quality, markups increase with increasing specific tariffs. This form of price discrimination is less pronounced for higher‐quality products that are predominantly shipped by air.