One Model Fits All? Determinants of Transport Costs Across Sectors and Country Groups

Abstract

We show with the aid of pooled OLS estimations that investments in improved road infrastructure have the potential to significantly reduce transport costs. However, this result can only be clearly confirmed for industrial countries and is of primary importance for production and transportation of agricultural goods. For developing and transition countries we find other determinants such as weather conditions to be more important in determining transport costs. A key variable, especially in these countries, is corruption. At very high levels corruption has the potential to prevent positive effects from roads on transport costs or to even reverse them. This paper contributes to the literature on infrastructure investment by introducing and applying an internationally comparable measure of transport costs which can be calculated for a large and growing number of countries. We isolate important determinants of transport costs and provide insights into international and sectoral differences concerning the impact of roads on transport costs. We conclude that investment in transport infrastructure can have substantial positive effects especially on agricultural production and the efficient marketing of agricultural products but only if specific conditions are in place.