Adapting to within-country export barriers: Evidence from the Japan 2011 Tsunami

Oct 2017 | 198

Authors: Masashige Hamano, Vessel N Vermeulen

How is a firm's ability to export affected by changes in domestic trade costs? In particular we focus on the interation between firms and ports to answer how strongly exports from one ports are affected by changes in the cost of exporting at neighbouring ports?  To answer these questions we extend the standard trade model with heterogeneous firms to have a multiple port structure where exporting is subject to port specific local transportation costs and port specific fixed export costs as well as international bilateral trade costs.  We derive a gravity equation with multiple ports and show that gravity distortion due to firms heterogeneity is conditional on port comparitive advantage and resulting substitution of export across differentiated ports.  We present evident of the substitution effect using the 2011 Great East Japan Earthquake and following tsunami, which suggest that about 50% of the exports was substituted to other ports following the disaster.

JEL Codes: F14, O18, R1

Keywords: firm heterogeneity, entensive margins, transportation costs, fixed costs, natural disasters

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