Overland and Oversea: Domestic Trade Frictions in the Philippines

Abstract

Domestic trade costs are anecdotally high in the Philippines, and yet a systematic and spatially comparable metric of trade costs is unavailable. This paper fills this gap by estimating province border effects, or a province's tendency to trade with itself rather than with other provinces. Subsequently, the effects of a maritime transport program based on roll-on roll-off (RORO) ships on province border effects are assessed. Using two novel datasets-the starting dates of RORO shipping services by route, and the intraprovince trade of agricultural products-this study finds that province border effects are substantial, with a typical province trading 51 times more with itself than with other provinces. The RORO transport program is associated with an average reduction of 35% of this home province bias. However, the border effect reductions are unevenly distributed, with the largest reductions concentrated in provinces near the biggest demand centers.