Disruption in Ground Transportation: Landslides and Disintegration of Local Food Markets

Spatial integration between markets and production regions is essential for price efficiency and optimal trade, but transportation disruptions, often from natural disasters, can obstruct this process. Climate change exacerbates these disruptions by increasing the frequency of events like landslides through heavier rainfall, making it crucial to study their impact. This research quantifies the impact of landslide-related road disruptions on food price differentials across various markets within a national context. I propose a model that uses a combination of the law of one price and a competition framework where firms decide where to trade. I implement the model in an empirical framework by using comprehensive data from Colombia’s wholesale markets, including more than 230,000 transactions, a routing algorithm that connects origin-destination points of food transportation, information on over 1,200 landslide disruptions, and a shift-share IV approach that leverages landslides as a source of external variation. The main findings reveal that a single road disruption, on average, leads to a decrease in product transportation between 2% and 3% to the affected market. Consequently, this reduction in supply causes an increase in prices ranging between 0.5% and 0.9% over a one-week period. Conversely, unaffected markets experience a weekly price decrease of approximately 0.5% on average due to an influx of goods diverted to those markets. Using multiple heterogeneous analyses, including causal forest and linear heterogeneity methods, this study reveals substantial variation in the impact of road disruptions. The heterogeneity is driven by two factors: the importance of the disrupted road within common transportation routes, shaped by geographic location, and by price elasticities that vary with city income levels and product specialization. In a contrafactual exercise, I show that investment in road networks in peripheral areas highly reduces landslides’ impact on price differentials at the country level.

Recommended citation: Nino, Gustavo, Disruption in Ground Transportation: Landslides and Disintegration of Local Food Markets (September 20, 2024). Available at SSRN: https://ssrn.com/abstract=5028042 or http://dx.doi.org/10.2139/ssrn.5028042
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