2020 Volume 76 Issue 2 Pages 91-99
Iceberg transport cost model is widely employed to describe transportation cost in theoretical economic analysis and quantitative analysis such as Spatial Computable General Equilibrium (SCGE) analysis. Iceberg transport cost is, however, assumes that the production of goods and the transportation of the goods are conducted using same production technology. Therefore, in SCGE model, each production sector produces goods and the transportation services of the goods. The problem of SCGE model with iceberg transport cost model is that the level of goods production and their transportation are indistinguishable. This study analyzes the problem theoretically and quantitatively. The quantitative analysis is conducted using two types SCGE models: a SCGE model employing iceberg transportation cost model and employing non-iceberg transportation cost model. The quantitative analysis shows that a SCGE model employing iceberg transportation cost model is not suitable to assess the change in the level of goods production caused by traffic improvement.
