The port system and the national economy : a multi-sectoral study of economic interactions

In most nations the port system is frequently regarded as an independent appendix to the national economy where the economic signals and the impacts are unidirectional: from the economy at large to the port system. Given that the ports can handle the cargo flows in an orderly way, without significant stoppages etc., there are seldom any questions about what goes on within the port. Autonomy is sought by the port management and granted by politicians who subscribe to the "appendix theory". This dissertation explores the place and importance of the port system in the national economy and highlights the position of the port system by such easily recognizable indices as GNP, wage rate levels, prices, etc. The analytical vehicle is a multisectoral general equilibrium model. The model has a supply side based on production functions and a Leontieff 1-0 structure. The demand side is delineated through sectoral demand functions for each of the final demand categories. This disaggregated model is specified and estimated for the Central American country of Costa Rica. Two preliminary solutions based on some drastic changes in the national port system pricing policies are evaluated. The results of the solutions indicated that the "appendix theory" is probably wrong and potentially dangerous for the economic development efforts, especially in small export oriented economies. Although the empirical model version had to be reduced in its level of detail and theoretical purity, the results clearly indicate a certain robustness at least in the direction of the interactions between the administrative actions of the port system and the general economy. Changes in the port tariffs move through the economy and, depending on the magnitude of the changes, cause serious adjustment problems for the national economy. It is therefore important that any port tariff changes, in an export oriented economy like the Costa Rican, are analyzed and programmed before implementation. The model developed can be an invaluable tool for the national decision and policy makers with a much broader range of applications than analyzed in this study. One can easily see the model used as a basis for wage negotiations, government income optimization policies and selective port charging efforts. The model can be expanded by introducing, e.g., personal taxes, capital gains taxes, etc., where a whole new set of economic policies can be evaluated.