Transport Infrastructure and Patterns of Trade in the Philippines

ABSTRACT This paper investigates the effects of the Roll‐on Roll‐off Terminal System (RRTS) on domestic maritime trade patterns in the Philippines. The RRTS sought to bring down inter‐island trade cost by integrating road highways and sea ports through roll‐on roll‐off ships. Using an original dataset that tracks the historical development of RRTS routes over time, results suggest that RRTS port pairs trade 39% more compared to unconnected pairs with comparable characteristics. Transactions are 55% more frequent in RRTS routes, suggestive of inventory management as a key avenue of trade costs savings and the importance of RRTS' impact on the fixed costs of trade. Time‐sensitive products such as perishable agricultural goods and products broadly related to parts and components trade systematically benefit more from the RRTS. Overall, the gains of RRTS pairs do not come from displacing trade in non‐RRTS routes. Instead, nearby non‐RRTS ports experience substantial positive spillovers that could rival the direct effects of the RRTS.