Over Land and Over Sea: 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.