Posted by: Dirk | June 29, 2008

Think global, act local – and import apples!

The recent study Äpfel aus deutschen Landen (Apples from the German countryside) by Elmar Schlich et al. finds that apples from local producers are not necessarily greener than imported ones. Economies (or ecologies) of scale are the reason behind this, as reported by Der Spiegel. Big firms can transport apples to Germany in ships, which results in low energy use per apple. Small local firms might use cars and other means of transportation to ship very small quantities of apples. This is not efficient, and even less efficient than the transportation of imported apples.

These findings underline the general problem of transport costs: they are highly endogenous. Transport costs depend on the level of trade. In many NEG models, however, they are used to determine the level of trade. This inevitably leads to flawed results. Still, there is no easy solution to the transport cost endogeneity problem. See this paper by Dirk Holzhey for a discussion of a transport sector with increasing returns to scale in a NEG framework.

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