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What drives the high price of road freight transport in Central America ?

Author

Listed:
  • Osborne, Theresa
  • Pachon, Maria Claudia
  • Araya, Gonzalo Enrique
Abstract
In Central America, like many other developing regions, high transport costs are cited as an impediment to trade and economic growth. Prices for road freight transport -- a key mode of transport comprising a significant share of total transport costs for intra- and extra-regional trade, are particularly high. Averaging 17 cents per ton-kilometer on main trading routes, these rates stand out even relative to other inefficient developing country markets (e.g., central and west Africa). However, the policy and other factors associated with increased prices have not been well understood. This paper uses data from a survey of trucking companies operating on the region's main trade corridors to analyze the determinants of firms'costs of providing service, as well as the effect of market structure and competition on prices. The analysis finds that whereas improved cost efficiencies could reduce prices by 3 cents per ton-kilometer, increased competition on national routes -- those entirely within a nation's borders -- would reduce prices by significantly more. Although there are many trucking companies, including small and somewhat informal operators, the degree of competition varies by route because of domestic restraints on competition and the prohibition on international competition on national routes. The paper shows empirically that imperfect competition accounts for at least 35 percent of mean prices on national routes. In addition, a lack of competition is likely to explain the persistence of an inefficient market structure, as well as a lack of innovation to reduce costs and enhance the quality of service.

Suggested Citation

  • Osborne, Theresa & Pachon, Maria Claudia & Araya, Gonzalo Enrique, 2014. "What drives the high price of road freight transport in Central America ?," Policy Research Working Paper Series 6844, The World Bank.
    • Handle: RePEc:wbk:wbrwps:6844
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    References listed on IDEAS

    as
    1. Ying, John S, 1990. "The Inefficiency of Regulating a Competitive Industry: Productivity Gains in Trucking Following Reform," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 191-201, May.
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    5. Inmaculada Martinez-Zarzoso & Eva Maria Perez-Garcia & Celestino Suarez-Burguet, 2008. "Do transport costs have a differential effect on trade at the sectoral level?," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3145-3157.
    6. Marcelo Gordillo,Darwin & Schwartz,Jordan Z. & Stokenberga,Aiga, 2010. "Understanding the benefits of regional integration to trade : the application of a gravity model to the case of Central America," Policy Research Working Paper Series 5506, The World Bank.
    7. Scheinvar, Isaac, 1999. "Las carreteras y el sistema portuario frente a las reformas económicas en México," Series Históricas 7466, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
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    Cited by:

    1. Patrick Plane, 2021. "What Factors Drive transport and Logistics Costs in Africa ?," Working Papers hal-03198081, HAL.
    2. Jerónimo Carballo & Georg Schaur & Christian Volpe Martincus, 2018. "Transportation and trade interactions: a trade facilitation perspective," Chapters, in: Bruce A. Blonigen & Wesley W. Wilson (ed.), Handbook of International Trade and Transportation, chapter 14, pages 422-450, Edward Elgar Publishing.
    3. repec:wbk:wboper:22034 is not listed on IDEAS
    4. Liao, Haiyan & Holguín-Veras, José & Calderón, Oriana, 2023. "Comparative analysis of the performance of humanitarian logistic structures using agent-based simulation," Socio-Economic Planning Sciences, Elsevier, vol. 90(C).
    5. Jerónimo Carballo & Georg Schaur & Christian Volpe Martincus, 2017. "Transportation and Trade Interactions: A Trade Facilitation Perspective," IDB Publications (Working Papers) 97957, Inter-American Development Bank.
    6. Cosar,Ahmet Kerem, 2022. "Overland Transport Costs : A Review," Policy Research Working Paper Series 10156, The World Bank.

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    More about this item

    Keywords

    Transport Economics Policy&Planning; Markets and Market Access; Economic Theory&Research; Roads&Highways; Airports and Air Services;
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