Transportation, freight rates, and economic geography

► We model a competitive transport sector in a model of trade and geography. ► We compare the equilibrium spatial allocation of production under exogenous and endogenous freight rates. ► We show that freight rate asymmetries work against the agglomeration of firms in the larger region. ► Freight rate responses to trade imbalances provide a strong dispersion force. ► We prove these results both in the footloose capital and the core-periphery models.