Nachiket Shah

Fellowship: Rocca Pre-Dissertation
Fellowship Year: 2025
Project Theme/Title: Essays in Development Economics. Does Slack Disconnect Markets?
Abstract: Transportation costs within countries are exceptionally high in the African continent. Teravaninthorn and Raballand (2009) find that transportation prices on major trucking corridors in Central and East Africa are 2-3 times higher than in Brazil or Pakistan. Similarly, Atkin and Donaldson (2015) estimate that the cost of trading within-country in Ethiopia and Nigeria is 4-5 times larger than in the US. These barriers prevent firms from growing by accessing other markets, and they prevent remote consumers from seeing the benefits of globalization. So why are trade costs so high? Existing research has focused on a few theories for high intra-national trade costs, including poor road networks/road quality (Teravaninthorn and Raballand, 2009), low competition/high markups in the transportation sector (Allen et al., 2022), or information frictions (Allen, 2014). We propose an alternative theory: underutilized capacity (‘slack’) in the transportation sector. If a truck is not filled to capacity, the trucker must charge each producer a higher amount to recoup the costs of making the trip. Even if trucks are filled to capacity, low aggregate trade volumes can result in fewer trips overall, necessitating high markups to recover fixed costs of purchasing and maintaining the truck. A similar effect has been shown in international shipping (Skiba, 2007; Holmes and Singer, 2018). Relative to this literature, our contribution is to 1) document the extent of slack in agricultural trade, and 2) test the quantitative importance of slack in explaining high trade costs and low market integration in sub-Saharan Africa.