WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

World trade has grown tremendously since World War II. The two main explanations for this growth are policy-led trade liberalizations and reductions in transportation costs resulting from technological change. The transportation literature and prominent economic commentators –like Paul Krugman- have attributed a large role to the introduction of the container. However, despite the container's alleged impact on the increase in world trade, quantitative evidence on the effects of containerization on the increase in trade appears to be lacking. Our paper aims to fill this gap in the literature. Our empirical approach applies a reduced form gravity framework on a panel data of bilateral trade flows during 1962-1990. Technological change via containerization is identified by cross-sectional and time series variation in country-specific adoption of containerization. Applying a variety of fixed effects specifications, we find containerization to have statistically and economically significant effects on the volume of bilateral trade.