Since Charles Ellet's insightful analysis of optimal tariffs for a waterway in a competitive environment, a rich and extensive literature has developed involving the application of microeconomic theory and analysis to issues and policies in the economics of transportation, via the use of mathematical and statistical techniques. This book contributes to this literature in three ways. First, all of the chapters are concerned with the analysis of current issues: questions of industry productivity, of economies of density and scale, of pricing and competition, of the structure of technology, and of the prediction of equilibrium. Second, each of these essays endeavors to extend and apply microeconomic theory to its particular issue. This often involves an extension of modeling and statistical techniques in the process. Furthermore, in pursuing this second aspect the authors of the essays have been able to present their research design and methodology in more detail than is usually possible in a journal article. Thus a third contribution is to lower the costs of entry for nonspecialists into this field.

In recent years there has been considerable analysis of the structure of costs and technology of the regulated trucking industry. These studies have generally focused upon the question of economies of scale and the extent to which the industry could be expected to operate competitively in a deregulated environment. Thus, they have primarily concentrated on the questions of industry structure and conduct and performance, with particular attention to rates and service levels.

An equally important aspect of industry performance, however, is productivity. Although this has been largely ignored in analyses of the trucking industry, the implications of regulation for dynamic efficiency and productivity may be just as important as its implications for static efficiency and pricing policies. Indeed, preliminary work in this area by Friedlaender and Wang Chiang (1983) indicates that substantial productivity gains arise through operating characteristics, such as length of haul, that can be affected by regulatory policies dealing with route and operating authorities.

Although previous work has been suggestive, data limitations have prevented a definitive analysis of the sources and nature of technological change in the trucking industry. Without this information, however, it is difficult to determine whether technical change and productivity growth primarily arise from input effects, operating characteristic effects, or output effects, and hence whether regulation can be said to have had a major impact upon productivity growth.

From the earliest days of railroad service, the nature and extent of scale economies in rail operations have provided grounds for ongoing study and debate. Recent attempts to define and quantify scale economies have recognized that it is important to distinguish returns to traffic density from returns to scale (or firm size). Returns to density reflect the relationship between inputs and outputs with the rail network held fixed. Returns to scale reflect the relationship between inputs and the overall scale of operations, including both outputs and network size.

The dominant view is that the rail industry is characterized by increasing returns to density but constant returns to scale. Certainly there are plausible theoretical grounds for this view, and the empirical evidence has been convincing to some observers. For example, in a recent review Keeler (1983) stated: “Studies of railroad costs from the 1970's tell a … consistent story about returns to traffic density. They all give strong evidence of increasing returns, up to a rather high traffic density …” (p. 51 [emphasis added]). He commented that “there are constant or mildly decreasing returns to larger firm sizes, when route density is held constant” (p. 164).

Keeler bases his conclusions primarily on five studies: Caves, Christensen, and Swanson (1981), Friedlaender and Spady (1981), Harmatuck (1979), Harris (1977), and Keeler (1974).

The calculation of an equilibrium is fundamental to the positive analysis of any economic system. In this sense it is no surprise that one would wish to calculate an equilibrium among spatially separated markets connected by a freight transportation system, for that problem is evidently basic to regional and national economic forecasting. When the spatially separated markets of interest are represented as nodes of a network, the freight system infrastructure as links, together with some additional nodes to model modal or carrier junctions and transfer points, and some attempt to capture the complex hierarchy of decisions inherent in freight transportation is made, we refer to this equilibrium problem as the “freight network equilibrium problem.” What is a surprise to the uninitiated is that a theoretically rigorous representation of such an equilibrium and its efficient computation can be quite difficult, and that these are, to some extent, unsolved problems. In this chapter we endeavor to make this last point clear, to review some of the recent advances that have been made and to suggest future research necessary to a complete understanding of freight network equilibrium.

At first glance the freight network equilibrium problem, as we have described it so far, seems essentially the same as the spatial price equilibrium problem discussed in the seminal words of Samuelson (1952) and Takayama and Judge (1971).

An understanding of the structure of technology and the cost-generation process is a necessary step in the analysis of many policy issues. Questions of regulation, deregulation, merger, pricing, and investment all require extensive information on the affected firms' cost and production functions. The recent explosion of interest in issues of deregulation of transportation industries has generated a number of cost analyses of railroads, airlines, and, most recently, motor carriers. The purpose of this chapter is to help further sharpen the emerging image that studies of the motor carrier industry are providing. Our approach will involve emphasizing the heterogeneity of motor carrier technology, the source of the heterogeneity being the spatial context (or environment) within which production takes place. Our main goal is to find a unified and convenient characterization of the subtechnologies, with special emphasis on the role of the spatial environment in generating the subtechnologies.

We proceed as follows. We first pose a family of technologies indexed by a vector of attributes reflecting spatial and market characteristics. We shall see that one way to think of this vector is as a vector of lumpy inputs, some of which may or may not have meaningful notions of markets in which to purchase the lumpy inputs. We then proceed to consider the attribute-indexed cost function dual to the family of technologies.

The purpose of this chapter is to introduce the indexed quadratic (IQ) function and to examine its applications to empirical problems in the econometrics of production, with particular attention to the problem of modeling network technologies. The function in its most general form is a slight modification of a proposal by Baumol, Panzar, and Willig (1982) to construct cost functions as quadratic functions of outputs and to regard the resulting coefficients as concave independent homogeneous functions of input prices. Baumol et al. demonstrated that this formulation is well suited for modeling the technologies of multiple-output firms.

While the techniques developed in this chapter are applicable to a wide variety of industries characterized by network technologies – telecommunications, the postal system, most public utility systems (water, electricity) – the most obvious application is to transportation systems. A leading issue in transportation economics has been the appropriate measurement of output, since most transportation networks are sufficiently complex that an enumeration of outputs by origin–destination combination yields a very high number of ostensibly different outputs, possibly thousands. To distinguish these outputs for the statistical estimation of cost or production functions is infeasible. Moreover, it is not clear that such a treatment would be entirely desirable, since prior information concerning the nature of the relations among the outputs could not be easily incorporated in the estimation procedure; nor would the important network aspects of the technology – which induce the economies of scale and scope that are of primary interest – be perspicuous in the resulting representation.

Introduction

Shipping has been in the domain of the developed world since the earliest days when European sailors braved the uncharted seas in search of new worlds and trade. The Europe-Far East trades became increasingly competitive during the 1800s and that era saw the advent of European dominated shipping cartels called liner conferences. Even the development of the Panamanian flag of convenience was evidence of the United States' entrepreneurial spirit in shipping in the 1920s. Today, for the countries of the developed world, shipping is a mature industry with slow growth, and the focus of many traditional shipowning nations has changed accordingly.

Beginning in the early 1970s, many developing nations aspired to participate equitably in world prosperity and achieve a redistribution of world income; these aspirations culminated in calls by the United Nations for a New International Economic Order. In shipping and trade, the way was paved for the governments of the developing world to undertake fleet promotion strategies as one means of achieving wealth redistribution.

The particular reasons why many developing countries have become interested in fleet promotion are varied but are often related to real or perceived inequalities in the international ocean transport system. This chapter will address these reasons for five of the ASEAN countries and detail the subsequent legislative measures each has taken to promote national flag shipping. Each country has followed more than one course of action, some with a greater degree of success than others; fleet growth and the use of government equity to achieve that growth will be discussed in later chapters. In the last chapter, some comparative comments on the approaches of developing and developed countries to shipping policies will be made.

Singapore

Singapore's shipping policy in general reflects the country's overall government economic policy, which is to promote free enterprise with a minimum of official interference.

Economic relations through trade between India and the five member countries of the Association of Southeast Asian Nations (ASEAN) – formed in 1967 – namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand, have a long history. This is especially so in the case of Indonesia, Malaysia, Singapore and Thailand where the influence of Indian culture is readily evident even today and is reinforced by a sizeable population of Indian origin living in these countries. Even the settlement of some Indians in the Philippines is a story which is a few decades old. Our purpose is not to authenticate this part of the world history but, within this historical background, to trace the present state of economic relations between India and the ASEAN countries especially since 1970 and to analyse the prospects for economic co-operation among these countries in the near future.

In this context, economic relations can be conveniently divided into three parts, namely, trade-based relations, investment- (and joint venture) based relations, and all other economic relations based on services such as tourism, shipping, and banking. Accordingly, this paper is divided into three main sections. Section I deals with the survey of trade relations; Section II with the survey of investment relations with special reference to the joint industrial ventures; and Section III with the survey of “other” economic relations. The concluding section (Section IV) highlights some of the prospective areas for expanding economic co-operation between India and the ASEAN countries.

TRADE RELATIONS

Table 1 presents data relating to India's exports, imports, and trade balance with the ASEAN countries and the world for the year 1971/72 and 1976/77 to 1979/80. Table 2 presents the rates of growth of exports and imports based on Table 1.

Growth of Trade

Trade between India and the ASEAN countries as a regional grouping as well as with the individual countries of this grouping grew at a rapid rate during the decade 1971/72 to 1979/80.

INTRODUCTION

Nepal's economic relations with the members of the Association of Southeast Asian Nations (ASEAN), mainly through trade and in a very small way through investment in joint ventures, are of relatively recent origin. From time immemorial, Nepal's economic relations have been primarily confined to its large neighbour, India. This was so until the early 1970s. Thus, as late as in 1974/75, Nepal's exports to the group of five ASEAN countries (namely, Indonesia, Malaysia, Philippines, Singapore and Thailand) constituted only 2 per cent of its total exports to the world, whereas its exports to India constituted 84 per cent of its total exports (see Table 2). Similarly, Nepal's imports from all the ASEAN countries in the same year made up nearly 2 per cent of its total imports from the world whereas the corresponding proportion of imports from India was 81 per cent. This position can easily be explained by the land-locked nature of the country and the traditional open border and easier transportation links existing with India for centuries, and also by the similarities in cultural, social, and religious values between the two countries. Until the 1960s, Nepal had exclusively depended on India for providing transit facilities for its trade with the countries overseas. Transportation links with its other large neighbouring country, China, have traditionally been weaker due to high mountains and difficult terrain.

It was only during the seventies that Nepal consciously started programmes of diversification of its economic relations with countries other than India, especially with the other countries of South Asia and the ASEAN grouping. This paper traces the changing profile of Nepal's economic relations with the ASEAN countries since 1974/75. The data base for Nepal's economy is quite weak. However, to the extent that data are available, we will draw upon them from the national and international sources. While the primary focus of the study will be on trade relations (Section II), “other economic relations” (such as investment in joint ventures in industries) will also be touched upon (Section III).

Towards a Definition of Desired Development Contributions

In an empirical investigation to establish and describe the actual contribution made by small and medium entrepreneurs to development, it must be known from the outset which section of the complexities of reality is to observed. Similarly, considerations about possible contributions to development presuppose the specification of what could or should be reached. It must therefore be established which values and contexts are being referred to when talking about development within a society. On analytical grounds, we propose a distinction between societal, social, and economic components.

The societal objective in many South and Southeast Asian countries – as indeed in Indonesia and Malaysia – has been determined by a fundamental political decision to strive for a parliamentary-democratic system with a mixed economy of the free enterprise type. This calls for efficient political and economic institutions as well as responsible individuals who are capable of actively organizing and operating them. Small and medium entrepreneurs can support societal development in this sense by their independent and autonomous action and activity. What is sought is a strong; dynamic, entrepreneurial middle class which is economically efficient, acts in a socially responsible manner and lends political support to the concepts of human rights and freedoms, 1iberal-democratic-social and governmental structures, and government by the rule of law.

The social objective – to set at least a minimum standard – is to ensure satisfaction of the basic material needs of the entire national population (that is, nourishment, clothing, accommodation, health care, and education). Entrepreneurs and managers in the private sector bear a social duty to contribute towards ensuring employment and income opportunities, a sufficient supply of goods, better living conditions for the work-force, their families and those otherwise concerned with the enterprise.

The economic objective is to deploy the national resources according to the principles of economics.