Although transport costs have decreased substantially over the past two centuries, they are still far from negligible. This column argues that in addition to standard ad-valorem transport costs, there is an important role for additive costs in trade models. The authors estimate that over the period 1974 to 2019, additive costs represented between 35% (in air transport) and 45% (in vessel) of total transport costs. Furthermore, accounting for additive transport costs helps characterise the downward trend in total transport costs since the 1970s and suggests that the gains from trade over the period have been larger than generally assumed.
Nothing contributes so much to the prosperity and happiness of a country as high profits