Tinbergen, Koopmans, Rotterdam, and Erasmus University

 

Jan Tinbergen, our illustrious colleague at Erasmus University, was the first economist to use Isaac Newton’s gravitational formula to explain trade between two nations. Simply, the gravitational force between two planets, in other words the force that keeps the earth rotating around the sun (or the Andromeda Galaxy approaching our Milky Way at a speed of 100 km/s), depends directly on the mass of the two planets (translated into the size of the two economies in trade models), and is inversely related to the distance between them.  Thirty years later, I showed that, in trade models, and due to competition and economies of scale in shipping, the ‘physical distance’ in Tinbergen’s model is not appropriate anymore and needs to be replaced with ‘economic distance’ as this is proxied by ocean freight rates.

 Most people know that Jan Tinbergen shared the first Nobel Prize in Economics (1969) with the Norwegian Ragnar Frisch. Not many maritime economists, however, know that Tinbergen’s favorite student, Tjalling Koopmans, also shared the 1975 Nobel Prize in Economics with Leonid Kantorovich, for their work on activity analysis; the precursor of operations research.

Before moving to the United States, at the beginning of WW2, to eventually take over the Cowles Commission, Koopmans was also teaching at Erasmus, filling in for the classes in Mathematical Economics of Jan Tinbergen who had (temporarily) moved to Geneva. Koopmans’ book «Tanker freight rates and tankship building» is standard reading in every advanced class in Maritime Economics.

But what I have always considered much more important is Koopmans’ 1947 paper « Measurement without Theory», sent to me by a very smart student of mine, Armando Veras Sepúlveda, who reminded me of the things I was teaching them back in 2006: «Data ought not create theory; data should only validate theory». I have since lovingly dedicated this to all my econometrician friends and colleagues (particularly time-series econometrics).

It was therefore the obvious thing to do to name our landmark campus building (photo) the ‘Tinbergen Building’.

When I moved to Rotterdam in 1992, the 17-storey Tinbergen Building was being renovated. Our offices were temporarily housed across the street, in Brainpark (something like the Silicon Valley of Rotterdam) but the classrooms could not of course move too. Thus, my first lectures, in the harsh winter of 1992-3, were given in a container! Probably, my future love for the ‘box’ since, was not totally unrelated to that winter… A lot of prominent ‘Rotterdammers’ came out of that box, however; and of course, a lot of colleagues too.

Eventually, the renovation finished and we moved back in. Rotterdam was very different then. From my room on the 12^th floor, I could muse over cows on the open fields of Capelle aan den Ijssel. On campus, whenever we heard a language other than Dutch we would turn our heads in surprise. In downtown Rotterdam, there was only one tourist information office in Coolsingel, and you would be lucky if you could find it manned. But look at Rotterdam today; look at the ‘Manhattan of Europe’! 

Rotterdam was granted its City Rights on 7 June 1340; almost seven  centuries ago. At that time, the city was a modest settlement of some 2,000 souls. How this little, muddy outpost of the River Rotte evolved into the “Manhattan” of Europe, and Europe’s largest port, is a compelling story. It is a story of relentless hard work, respect for one’s fellow citizen, adherence to the rule of law, and a deep sense of shared heritage and shared values.

HH

Digital competitiveness and logistics performance

 

Logistics and supply chain management have become a way of life in modern society. From my morning coffee which is brought to my doorstep in five minutes, to the reconfiguration of global transportation and trading networks, logistics has transformed the world we are living in. 

But to what extent does logistics performance depend on our digital prowess and our adoption of modern technological advances? And is digital competitiveness the only prerequisite for logistics and trade performance? One would tend to think that the answer is obvious; but it is not. 

We have met technologically advanced countries lagging in logistics performance, but also logistics champions falling short in digital applications. To further explore this, we use comparable data from 50 countries, from the World Digital Competitiveness Rankings (WDCR) and the Logistics Performance Index (LPI). By integrating objective weighting (CRITIC), efficiency measurement (DEA) and categorical pattern analysis (MCA), we show that stronger logistics performance reduces uncertainty and information asymmetry costs. 

Digital prowess, however, is a necessary but not a sufficient condition for logistical performance and trade efficiency. For digitalization to be effective, other things need to be present too. These include land infrastructure, city-port relations, customs facilitation, last-mile investments, data-governance frameworks, well trained human capital, cybersecurity infrastructure and knowhow, and more (see HE Haralambides (forthcoming), “Ports, shipping and trade: the 40 years odyssey of a story-teller”. Amazon publishing, 2026). 

Many thanks to my coauthors Emrah Akdamar and Ersin Firat Akgul for an excellent research cooperation.

(published Open Access)

THE DEMAND FOR SHIPPING

Unless properly explained, I have often observed, in undergrad classes, a certain difficulty in comprehending why we measure the demand for shipping services in ‘ton-miles’; in other words, what distance has to do with a million tons of iron ore that we want to import from Brazil. The question was raised again this morning by a smart young lady, when I was showing them this picture:

«prof, I am importing a million tons of coal; what difference does it make if I bring it from the US or Australia?»

At first sight, and for someone introduced for the first time to shipping economics, the question appears plausible and legitimate. But the question only arises if we do not explain, right at the outset of the class, that, opposite to the supply of tonnage which is a ‘stock’ variable, as we say in economics, i.e., so many ships in the world as of January 1st, demand for shipping is a ‘flow’ variable; i.e., I am importing so many tons per year.

Still, the concept wasn’t clear to all. But there comes a young chap from the end of the room, saying:

«hey prof; can I try to explain this with a very simplistic example?»

I nodded him to the blackboard. And here he goes: (the text below is mine; Michael just did the calculations).

Assume the annual demand for shipping capacity is 1.2 million deadweight tons for the transportation of iron ore from Australia to China: distance (approx.) 4,000 nm.  The voyage takes 15 days and the job could be done by a single bulk carrier of 100,000 dwt in twelve trips (15x2x12=1 year). Now assume China decides to stop buying from Australia and switches to Brazil which, however, is three times the distance to Australia; i.e., 12,000 nm. The voyage of our bulk carrier would now take 45 days and thus the ship could make only 4 trips in a year (45x2x4=1year) and transport just 400,000 tons of iron ore. To bring 1.2 million tons to China in a year (our annual imports), we need either a bulk carrier of 300,000 dwt, i.e., three times bigger, or three bulk carriers of 100,000 dwt, like ours. The demand for shipping capacity has tripled.

P.S.1: Needless to say Michael is exempted from next week’s exam and he proudly knows it. 😊

P.S.2: Brokers: please don’t shoot the pianist: as Michael said, the example is simplistic and for illustrative purposes only. As such, the example has done its job (or so I hope).

HH