Transport Costs and Economic Integration in the Americas

We discuss three models from the literature in which transportation costs play a critical role in evaluating international economic integration. One considers costs on intra-bloc trade, one those of extra-bloc trade, and one the relativity of the two. We then examine estimates of the actual transportation costs on Latin American exports to the United States. These are significant - generally higher than trade barriers - and are higher on Latin American exports than European exports. The paper concludes that transportation costs do not provide a strong incentive for integration in the Americas, and that reducing such costs could be an important complement to integration.