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This paper analyzes the effects of waterway transportation costs on the spatial distribution of corn prices at U.S. grain markets. Interregional trade theory predicts that in a competitive market price differences between markets are explained by transportation cost. The precise role played by transportation costs can depend on distances that grain needs to travel and also on the extent to which markets are integrated into the transportation system. The Mississippi waterway consists of an efficient barge transportation system that links the Midwest to the largest grain export market, the Gulf of Mexico. In markets with export to the Gulf, we predict that: (1) the magnitude of price differences between two markets increases with an exogenous increase in barge rates; (2) the response of prices to barge rate changes for markets on the river is greater the farther north, or upstream, the market is; (3) the magnitude of the barge-rate effect on prices declines with distance from the market to the river; (4) the barge-rate effect is less pronounced in markets that are less integrated into the river system. We develop theory-based predictions along these lines. We test the predictions and measure the associated effects with a mixture of parametric and nonparametric methods applied to a rich panel data set of corn prices from over one thousand locations.


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