Estimating gravity equations with endogeneous trade costs

A basic assumption of the gravity equation of international trade is that increasing trade costs lower exports. Butintuition and theory imply that a high export volume lowers bilateral trade costs as well, because a fixed cost intensivetrade sector probably bears lower average costs with more trade. In this case, standard gravity estimation might bebiased due to simultaneity. This paper finds an empirical interdependency between exports and trade costs. Using asimultaneous equation model to face this problem improves the estimates compared to the standard gravity specification. --Gravity Equation,Trade Policy,Simultaneity Problem

The gravity equation with micro-founded trade costs

Gravity Equations are broadly used to estimate the impacts of trade impediments on trade flows. It is often stated that results are implausibly high. In theoretical foundations of the gravity equation, trade costs usually enter as icebergmelting-costs. This paper offers an alternative approach to model trade costs. From a microeconomic point of view, trade costs should depend on trade input prices and - which is new - the underlying trade volume. If trade costs are determined by the trade volume, and average trade costs are falling with the trade volume (e.g. due to economies of scale in the trade sector), empirical results from gravity equations are likely to be biased. --gravity equation,trade costs,estimation bias

The Gravity Equation and the Interdependency of Trade Costs and International Trade

The gravity equation is probably the most important tool in international economics to explain and estimate trade flows. However, since the gravity equation is important for political decisions, it is very important to achieve reliable results from its empirical application. Thus, it is necessary to employ the gravity equation using a theoretically and empirically proper methodology. One important discussion addresses the implausibly high measures for the impact of trade cost proxies on exports that frequently appear, especially in older works. This problem became known as the "border puzzle" (Obstfeld and Rogoff, 2001). The aim of the study is to contribute to the discussion about the suitability of the gravity equation's empirical applications. The basic idea is that trade costs between two countries could additionally depend on the exports between these two countries and not only on the (more or less) exogenous proxy variables for trade costs, as they are normally used. In this study, a new theory of endogenous trade costs is provided which shows that iceberg trade costs are likely to depend on exports. An interaction between exports and trade costs (or the gravity function and a trade cost function) leads to a simultaneity problem. Moreover, this theory can be confirmed after estimating the gravity equation with an alternative econometric strategy: A simultaneous equation system using a theory-based index to compensate for the directly immeasurable trade. A further target of the study is in its use of the comprehensive trade cost index to compute "multilateral resistances" of countries to trade, introduced in the trend-setting work by Anderson and van Wincoop (2003). These multilateral resistances are necessary to retrieve unbiased results from empirical gravity equations. A methodology was developed to make the heretofore unknown index of multilateral resistances visible. The result of the simultaneity approach and the use of constructed data for bilateral and multilateral trade costs is that the estimated direct effects of variables influencing exports decrease. The proposed methodologies of this study could help to achieve more plausible and reliable results from the gravity equation as the "workhorse for empirical studies" (Eichengreen and Irwin, 1998) of international trade

Die Handelskosten von Sachsen

Die regionale Struktur und das Volumen der sächsischen Exporte und Importe erklären sich nicht nur durch die relativen Kostenunterschiede zwischen Sachsen und den Handelspartnern; mitentscheidend sind auch die Handelskosten für Exporte und Importe der sächsischen Wirtschaft. Unter Handelskosten werden Transportkosten, Kosten des Grenzübergangs der Ware und Distributionskosten, die im Empfängerland entstehen, verstanden. Jüngste empirische Arbeiten zu Kosten im internationalen Handel zeigen ein überraschendes Ergebnis: Für die OECD-Staaten entstehen im Durchschnitt Handelskosten, die einem Aufschlag von über 170 % entsprechen. Handelskosten können als Aufschlag, d. h. als ein Wertzoll aufgefasst werden. Unser Beitrag verwendet einen neuen Handelskostenindex, um die Handelskosten in Form eines Zolläquivalents für die sächsische Wirtschaft zu ermitteln. Im Jahr 1992 lag der durchschnittliche gewichtete Aufschlag für mit Sachsen gehandelte Waren bei 1,70. Im Jahr 2008 nahm dieser Aufschlag der Handelskosten in etwa den Wert eins an. Damit muss zum ursprünglichen Warenwert noch einmal der gleiche Wert für die Kosten des Handels aufgebracht werden.Außenwirtschaft; Transaktionskosten; Transportkosten; Informationskosten; Außenhandelsbeschränkung; Vergleich; Sachsen; OECD-Staaten

Raising the Bar in Graph-level Anomaly Detection

Graph-level anomaly detection has become a critical topic in diverse areas, such as financial fraud detection and detecting anomalous activities in social networks. While most research has focused on anomaly detection for visual data such as images, where high detection accuracies have been obtained, existing deep learning approaches for graphs currently show considerably worse performance. This paper raises the bar on graph-level anomaly detection, i.e., the task of detecting abnormal graphs in a set of graphs. By drawing on ideas from self-supervised learning and transformation learning, we present a new deep learning approach that significantly improves existing deep one-class approaches by fixing some of their known problems, including hypersphere collapse and performance flip. Experiments on nine real-world data sets involving nine techniques reveal that our method achieves an average performance improvement of 11.8% AUC compared to the best existing approach.Comment: To appear in IJCAI-ECAI 202

Post car mobility: A perspective of transport system evolution

With growth rates of approx. 10% per year e-commerce is thriving the parcel market year after year and makes it the fastest-growing logistics submarket (BIEK, 2017; HDE, 2017). The online market is determined by an intense competition between online retailers battling for customers and market shares. Apart from price and quality retailers bait their potential customers by offering multiple delivery options: on-time delivery, choice of handover location and person on the day of delivery, same-day delivery climaxing in speed deliveries within 60 minutes are new requirements for courier, express, and parcel (CEP) service providers (Allen et al., 2017). Increasing transport driven by new business models and general market growth challenge the classic transport system ‘road’ in last mile logistics – currently using mainly light duty vehicles (LDV). Especially in urban context the increasing number of tours per vehicle and increasing obstructions by congestion, construction sites and parking restrictions are examples of growing challenges for parcel service providers (Allen et al., 2017; Voccia et al., 2017). Even access restrictions for vehicles with combustion engines not complying with EURO6 standard may be implemented by cities in the near future. In rural context, long travel times between customers make CEP services extremely expensive. Due to these challenges one might believe that they could be systemic limits of future growth for classic last mile logistics. Thus, CEP service providers are urged to innovate since established technology won’t meet future requirements. The latest developments are twofold: on the one hand, online retailers themselves are looking for alternative solutions. On the other hand, CEP service providers are piloting innovation projects themselves. Automated (electric) vehicles, electric cargo cycles, and air- or groundborne drones are currently considered as the major alternative key technologies (Visser et al., 2014; Stolaroff, 2014). Amazon, Alphabet or, more recently, 7Eleven are one step ahead to the major CEP integrators such as DHL, UPS, or DPD when it comes to deploy airborne drones (Bamburry, 2015). 7Eleven was the first company which carried out a commercial drone delivery in the US in July 2017 (Businessinsider, 2016) while Amazon has received a lot of media attention in 2017 filing patents on a new distribution concept with a dirigible (Zeppelin) as a flying warehouse in combination with drones as last mile distributors. Thus, airborne drones seem to be an interesting technology option for future last mile deliveries to overcome ‘road transport’ limits (Goodchild, Toy, 2017; Rao et al., 2016; Tavana et al., 2017)). However, literature shows that currently drones are too expensive and lack in payload, robustness, and compatibility with existing delivery procedures. From expert interviews and project result a drone delivery has approx. twice the price as LDV delivery (Liedtke, 2016). Economic feasible applications may only be specialized operations such as time-critical deliveries (e.g. vaccines), deliveries in disaster areas or of luxury goods (Haidari et al., 2016). Cost-benefit analyses show that the cost for implementation can be lower than its benefit – the key is new speed delivery services for which costumes (e.g. Amazon Prime members) are willing to pay more for (Welch, 2015). Thus, from literature the assessment of the drone-concept and characteristics induces that it is not yet a competitive (economic AND technological) alternative to traditional distribution concepts in the last mile delivery mass market. Is it therefore not worth for policy makers to consider airborne drones as part of the solution for future last mile logistics. Against this background, the research question of this paper is: Can airborne drones be a competitive alternative to traditional delivery procedures in the CEP market? This article discusses the competitiveness of airborne drones from an evolutionary economic point of view and aims to introduce a different perspective for a societal discourse of future solutions for last mile logistics. The analytical approach is based on the concept of transport system evolution by Müller and Liedtke (2017). The concept highlights four phases of transport system evolution with respective theories for explaining systematic phenomena: 1) stabilization phase (searching for a lock-in into a technical/organizational configuration), 2) technology transition phase (exploiting the Attacker's Advantage), 3) growth phase (being the Innovator's dilemma) and 4) degeneration phase (resting in a Stalemate of Technology). These four phases of a transport system’s evolution are mutual interdependent to evolutionary phases for alternatively existing transport systems. Thus, the evolution of a transport system and its specific evolutionary phase’ status creates the framework conditions for alternative’s evolution and vice versa (see the Figure 1 in the appendix). According to the scheme of Müller and Liedtke (2017), the CEP logistics mass market is in the phase of growth (3). As a consequence, the so-called innovator's dilemma is emerging. This innovator's dilemma is characterized by two aspects: a) intensifying the optimization of established technologies (vehicle technology, delivery concepts and business models) by an innovation competition on quality and convenience and, b) an active exclusion of alternative technologies as they threat the established technology path and with it patents, market power, and profit margins (in latent market equilibrium). At the end of the development of the innovator's dilemma, the ‘attacker's advantage’ of an alternative technology becomes likely. This advantage is given by the fact that the alternative technology is only at the beginning of a further refinement of performance and operational capability, while established technologies can be described as ‘throughout optimized’. Most likely, the performance of the alternative can be significantly increased by further agglomeration of capital and knowledge. A comparison with the first heavy duty vehicles (HDV) and its competition against horse-drawn carriages and horse-drawn tramways around 1910 is applicable. The performance of HDVs of this time has nothing in common with nowadays trucks’ performance in terms of capability, operational cost and robustness. Currently, the drone seems to be in the stabilization phase (1), in which suppliers are experimenting in market niches. Proves are visible: a) increasing number of tests using technology variants with demand responses (e.g. responses from 7Eleven or Amazon their customers), b) increasing number of drone technology providers, and c) initial attempts creating business models with drones. However, the lock-in is not given yet for this technology. Thus, the exploitation of the attacker’s advantage can be expected after having locked-in the drone technology in profitable and growing niche market (probably with characteristics such as short-term change of delivery location and person, and speed deliveries within 60 min after the order) to pioneer-costumer’s needs. Such niches may only be poorly or not at all served by LDVs or HDVs due to the above mentioned limitations of traditional delivery methods. The attacker's advantage would come effective if the future demand focused especially on these niches. Please note, retail giant Amazon and Google’s mother Alphabet are elaborating exactly these niches. The analysis demonstrates that airborne drones are baloney at the moment but have great potential to be part of the solution in future. While established delivery technologies are faced with systemic restrictions and cannot (or only poorly) satisfy future market demand and requirements, drones, however, can overcome existing limits, i.e. parking space, congestion, emission standards, etc. and meet future market demand and requirements. Thus, transport policies may explicitly promote the innovation ‘drone’ in the international competition for lead markets. In doing this, the drone could enter the discourse of sustainable and performant transport systems in parallel to the persistent requirement of increasing efficiency of established technologies