Essays in domestic transport costs and export regions in South Africa
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This thesis investigates the impact of domestic transport costs and location on exports originating from exporting regions within a developing country. It is presented in the form of three articles, each addressing a different aspect. These articles are accompanied by a literature review of the background and impact of domestic transport costs on trade. The first article provides empirical evidence for the significance of domestic transport costs in exports and the spatial location of manufacturing exporters. Cubic-spline density functions are used and the results indicate (a) the proximity to a port is an important consideration in most export-oriented manufacturing firms' location, with more than 70% of manufactured exports in South Africa originating from a band of 100 km from an export hub; and (b) there appears to be a second band of these firms at a distance of between 200 and 400 km from the hub. Between 1996 and 2004, manufactured exports in the band between 200 km and 400 km from the nearest hub increased, suggesting either an increase in manufactured exports that depend on natural resources due to demand factors, and/or a decrease in domestic transport costs, amongst others. The second article investigates the question of the location of exporters of manufactured goods within a country. Based on insights from new trade theory, the new economic geography (NEG) and gravity-equation modelling, an empirical model is specified with agglomeration and increasing returns (the home-market effect) and transport costs (proxied by distance) as major determinants of the location decision of exporters. Data from 354 magisterial districts in South Africa are used with a variety of estimators (OLS, Tobit, RE-Tobit) and allowances for data shortcomings (bootstrapped standard errors and analytical weights) to identify the determinants of regional manufactured exports. It is found that the home-market effect (measured by the size of local GDP) and distance (measured as the distance in km to the nearest port) are significant determinants of regional manufactured exports. This article contributes to the literature by using developing country data, and by adding to the small literature on this topic. This article complements the work of Nicolini (2003) on the determinants of exports from European regions and finds that the home-market effect is relatively more important in the developing country context (South Africa), a finding consistent with theoretical NEG models such as those of Puga (1998). The third article is an empirical study of the relationship between export diversity and economic growth in a developing country context. Using export data from19 sectors within 354 sub-national (magisterial) districts of South -Africa, various measures of subnational export diversity are constructed. It is found that it is not only important how much is exported, but that it is also important what it is that is exported. Regions with less specialisation and more diversified exports generally experienced higher economic growth rates, and contributed more to overall exports from South Africa. It is also found that distance (and thus domestic transport costs) from a port is inversely related to the degree of export diversity. Estimating a cubic-spline density function for the Herfindahl index measure of export diversity, it is found that export diversity declines as the distance from a port (export hub) increases. Most magisterial districts with high export diversity values are located within 100 km of the nearest port. Furthermore, comparing the cubic-spline density functions for 1004 with those of 1996 shows that distance (domestic transport costs) has become more important since 1996 (under greater openness) with magisterial districts located further than 100 km from the ports being less diverse in 2003 than in 1996. One may speculate that a possible explanation for this changing pattern of export diversity may be the impact of greater foreign direct investment (FDI) in South Africa since 1996.