Authors: Pramesti Resiandini
Addresses: Department of Economics, Andrew Young School of Policy Studies, Georgia State University, Atlanta, GA 30303, USA
Abstract: This paper compares data on Japanese and Korean automobile exports to the USA to examine consistency with the Alchian-Allen theorem. The theorem suggests that imposing a per unit charge such as transport cost will lower the relative price and increase the relative consumption of higher quality cars. Empirical results show that the relative price of higher quality cars is not necessarily lower with increased shipping costs, measured by CIF charges (cost, insurance and freight). A possible explanation is that insurance and other shipping charges are imposed based on the car price, and these charges reduce or eliminate the Alchian-Allen effect of per-unit freight charge.
Keywords: international trade; transport costs; Alchian-Allen theorem; dynamic OLS; Japan; Korea; automobile industry; automotive exports; USA; United States; relative prices; higher quality; shipping costs.
International Journal of Trade and Global Markets, 2014 Vol.7 No.1, pp.86 - 98
Received: 30 Jul 2012
Accepted: 20 Mar 2013
Published online: 29 Oct 2014 *