Market Thickness and Freight Costs: Evidence from the Panama Canal Expansion – Diana Beltekian

Speaker

Diana Beltekian (Kiel Institute)

Abstract

This paper studies how maritime infrastructure improvements affect the freight costs firms pay. The 2016 Panama Canal expansion doubled the canal's capacity and allowed much larger vessels to transit. Using Colombian customs transaction data, I estimate that the expansion reduced exposed firms' ad valorem freight costs by 7% on average. This average masks substantial heterogeneity in the market thickness of firms' trading environments, which I measure by the number of importers on two legs of the journey: firms sourcing from the same origin country (international peers) and firms located in the same municipality (domestic peers). Allowing the canal effect to vary with peer counts, the freight cost reduction is substantially larger on routes with more peers, and rises steeply with the number of international peers, holding domestic peers fixed — consistent with thick routes attracting disproportionate capacity and carrier competition after the expansion. 

Room

Media Room (A-211)