Profit and Geography

Sammanfattning: Shareholders, executive boards and other decision makers of the firm decide upon strategies of where to produce and where to sell. During some periods it has been popular to produce goods near the market where they are sold. In some periods it has been popular to produce in for example low cost countries on the other side of the earth and export from there. Transporting goods between continents is costly for firms. It is difficult to see all transportation costs, because they appear randomly at different locations within and around the firm. Therefore I develop a theory of visibility of transportation costs. If transportation costs are visible, the importer, the exporter and their customers and suppliers are sharing the welfare loss from trade cost. But I find that if a transportation costs is invisible, it will solely be borne by the equity holders of the firm, while its customers will not pay anything for the invisible trade cost. I estimate the effect of intercontinental trade on operating margins for 26 good transporting firms of mostly Swedish origin over the period 1970 to 2008. I find some evidence that there is some invisibility in transport costs and that, by keeping production and sales margins constant, one percentage unit increase intercontinental trade cause a decrease operating margin by 0,21 percentage units.