Collaborative Research: The Economics of Port Infrastructure

This award funds a project in the economics of transportation infrastructure that focuses on the role of shipping ports in international trade. Such infrastructure is crucial for the smooth functioning of international trade. Because more than 80% of traded goods (amounting to 11 billion tons and about $20 trillion) are carried by ships, shipping ports are the literal gateway to international trade. The advent of global sourcing, whereby firms source their inputs from further away suppliers, as well as just-in-production, whereby firms expect their inputs to arrive at the moment they need them, has made ports even more pivotal in recent decades. This became painfully apparent during the "Great Supply Chain Disruptions" induced by the Covid-19 pandemic, which upended supply chains, and generated enormous costs to importers and exporters worldwide, who faced massive delays in obtaining their goods. In this uncertain environment, what are the returns to investing in transportation infrastructure? And how should funding be coordinated and spent? What are the drivers of port performance and why are ports so prone to disruption? This project seeks to provide an answer to these questions, by combining a collection of novel data sets on ports, with a state-of-the-art modeling framework for port technology and demand for port services. The results of this project will be useful for making policy decisions about infrastructure investments, including both where ports should be located, what kinds of investment has the highest returns, and whether or not these decisions should be decentralized. The researchers construct a unique database on global ports that relies on data collected by private providers, as well as their own data collecting efforts. The data includes satellite vessel position data, detailed port charges, as well as union membership. They create a dataset on port infrastructure by manually collecting historical satellite images of world ports from Google Earth. In order to evaluate the role of transportation infrastructure one needs the following ingredients: infrastructure technology to understand both the dynamics of congestion, as well as how investment in infrastructure affects congestion; and a demand system for transportation services. This is necessary both because demand endogenously responds to infrastructure improvements, but also in order to quantify their welfare gains. Using insights from queueing theory, the researchers construct and estimate a micro-model of port technology that takes port inputs, such as infrastructure, labor, cranes, and productivity, and produces output, namely time at port. That setup endogenously generates convex costs of congestion. The researchers then estimate a demand system for port services: potential exporters/importers decide which port to use and obtain utility from lower time at port, shorter distance to their origin and destination, lower port prices, as well as other characteristics of the port. The researchers combine their estimates of technology with their estimates for port demand to estimate the returns to port infrastructure investment. The research advances knowledge by shedding light on how ports operate and how they contributed to the Great Supply Chain Disruption. It takes a deep look into port technology and shows that it renders ports inherently disruptive. This also illustrates the role of uncertainty and the impact of different inputs on resilience. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.