LAC Occasional Paper Series

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The LCSSD Occasional Paper Series is a publication of the Sustainable Development Department (LCSSD) in the World Bank’s Latin America and the Caribbean Region. The papers in this series are the result of economic and technical research conducted by members of the LCSSD community. The series addresses issues that are relevant to the region’s environmental and social sustainability; water, urban, energy and transport sector development; agriculture, forestry and rural development; as well as cross-cutting topics related to sustainable development such as climate change; logistics; crime and violence; and spatial economics. While all papers in this series are peer reviewed and cleared by the LCSSD Economics Unit on behalf of the Director of LCSSD, the findings, interpretations, and conclusions expressed in this paper, as in all publications of the LCSSD Occasional Paper Series, are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. The World Bank does not garantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use.

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Freight Flows,Logistics Costs, and Efficiency: Optimal Path Analysis

2012-06, World Bank

In Central America, cargo is transported almost entirely by road. The movement of imports and exports to and from international seaports is done by truck. Rail service is almost nonexistent and air transport serves less than one percent of the cargo generated within the Central American Common Market (SIECA, 2004). Intra-regional trade is much more important in Central America than it might seem at first glance. The second largest trading partner of Central America is the region itself. In 2010, one quarter of the exports from Central America were destined for final consumption within the region. Half of the exports of Central America (54 percent in 2010) correspond to agricultural products and a large proportion of them supply markets inside the region. Nearly 40 percent of intra-regional exports consist of food, beverages, animals and plants (SIECA, 2011). Perishable food products are transported on trucks, and spatially restricted by the geography and the road infrastructure. In this context, inefficiencies in the supply chain and delays in freight flows lead to economic losses and amplify the negative impact of the distance to the markets on trade. A gravity model of trade showed that the negative effect of distance1 on total intra-regional exports is 77 percent higher in Central America than in the European Union (World Bank, 2010). More precisely, an increase in distance by 1 percent is expected to reduce intra-regional bilateral exports in Central America by 1.65 percent. In terms of volume, the negative effect of distance within the region exceeds the effect in Europe by 50 percent in grains and up to 550 percent in processed food. In the latter case, an increase in distance by 1 percent is expected to reduce intra-regional bilateral exports of processed food in Central America by 2.88 percent.