Backfiring with Backhaul Problems:
Trade and Industrial Policies with Endogenous Transport Costs
(Revised Version of HIAS-E-12)


Trade barriers due to transport costs are as large as those due to tariffs. This paper incorporates the transport sector into a standard model of international trade and studies the effects of trade and industrial policies. Transport firms need to commit to a shipping capacity sufficient for a round trip, with a possible imbalance of shipping volumes in two directions. This imbalance is known as the “backhaul problem.” As transport firms attempt to avoid this problem, a tariff in one sector may affect other independent import and/or export sectors. In particular, domestic tariffs may backfire: domestic exports may also decrease, harming domestic export sectors and the domestic economy. This finding contributes to the literature on how import liberalization may generate a positive effect on the liberalizing country’s exports by identifying a new channel through endogenous changes in transport costs given the backhaul problem.

Report No.: HIAS-E-57
Author(s): Jota Ishikawa(a), (b)
Norio Tarui(c)
Affiliation: (a) Faculty of Economics, Hitotsubashi University, Kunitachi, Tokyo 186-8601, Japan
(c) Department of Economics, University of Hawaii at Manoa and the University of Hawaii Economic Research Organization (UHERO), 2424 Maile Way, Saunders Hall 542, Honolulu, HI 96822, U.S.A
Issued Date: October 2017
Keywords: Transport sector; transport cost; backhaul problems; international shipping; tariffs
JEL: F12, F13, R40