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Research on the Environmental Impacts of Trade

Graduate student Ethan Singer's research on regional trade is contributing to the Heller-Hurwicz Economic Institute's climate change initiative
December 7, 2015

PhD student Ethan Singer’s research on trade can be used to help us understand how climate change will impact regional economies. “Climate change is an important question of our time, and for economists that means working to understand how climate change will affect the economy,” Singer says. “And not just how it will affect the worldwide economy in general, but how it will affect different regions and populations.”

His research focuses on understanding the microstructure of trade and developing models of how goods flow between local regions. Examining this regional impact of trade, Singer notes that transportation costs are not directly proportional to distance. The cost of sending a shipment an additional mile is larger for short shipments than for far shipments—once heavy goods, like cement and drywall, are put on trains, the marginal cost of that additional mile is low.

“My research changes the way economists think about trade in subtle but important ways,” Singer says. “A lot of these ideas are very intuitive. But many of our economic models don’t incorporate these facts about the structure of transportation costs. That gives us a different understanding of trade flows, and with that we can better assess the effects of policies that put a price on emissions and change transportation costs.”

Singer has been examining census data in his research for a couple of years. First, he takes import shipments and matches them with the locations where they are going. Next, he estimates this model of trade flows. Most of the academic literature in this field has looked at trade between countries, like between the U.S. and China. But the U.S. isn’t a single data point—trade costs are dramatically different between Los Angeles and Minneapolis, for example. “We can’t just look at the U.S. as a whole,” Singer says. “By understanding regional transportation costs, we can examine the changes that will happen with different climate change policies.”

Understanding how regions are interconnected helps Singer determine how costs are distributed across different areas. In order to assess the cost of a carbon policy, it is critical to understand how trade flows would respond to changing transportation costs. By modeling the transaction level decisions and costs associated with shipping goods between different places, Singer will be able to estimate the local and regional impacts of these inevitable changes.

“Right now my research is in the stage of building these models and making sure they fit the data,” Singer says. “My goal for future research is that these models can be applied to climate change policy--allowing us to calculate how different regions would be affected by a carbon tax or cap and trade policy.”

“By understanding these changes in transportation costs at a detailed level we can better assess what the costs of a climate change policy will be at the local level. And that’s very important from a policy standpoint.”

 

This story was written by an undergraduate account executive in the CLAgency. Meet the team.