The Role of Price Elasticities of Demand in the Economic Impact of a Port

Joseph S Desalvo,Debra L Fuller

doi:10.52324/001c.8968

Abstract

The standard approach to estimating the economic impact of a port overestimates the port’s direct impacts on exports and imports. The overestimates result because all export and import activity in the impact area is assumed to fall to zero in the absence of the port. We argue that this assumption is incorrect in general. How much exports and imports fall depends on the elasticity of demand for exports and imports. These elasticities may be infinitely large, which is what is implicitly assumed in the standard approach, but they may be less than infinity, in which case, not all of the export or import activity will be lost. We develop a methodology that explicitly accounts for the elasticity of demand for exports and imports and apply that methodology to the Port of Tampa. Comparing estimates of the direct impact using the standard methodology and ours confirms that substantial overestimates would have resulted from using the standard methodology.

Highlights

There are many economic impact studies of ports
Column 1 in each table presents the direct impacts as estimated by the standard method
Column 2 of each table presents the direct impacts as estimated by our method

Summary

Introduction

There are many economic impact studies of ports. We have compiled a bibliography of 45 port impact studies (available on request), and there are surely many more. The Port Economic Impact Kit (Temple, Barker & Sloane, Inc. et al 1985), developed under the auspices of the U.S Maritime Administration, is a handbook, with supporting software, for performing a port economic impact study. Sixteen of the 45 studies referred to above have used the Port Economic Impact Kit. In this paper, we will use the Port Economic Impact Kit as representative of standard methodology

Methods

Results

Conclusion