In this paper, I extend Lai's model for combines the New Open Economy Macroeconomics with transportation cost, I use a dynamic general equilibrium model with micro-foundation and monopolistic competition to discuss the impacts of the change in transportation cost on aggregate variables. The main findings of this paper are as follows. First, an increase in transportation cost of home country will raise the exchange rate and leading to the depreciation of domestic currency. Second, the effects of price level and consumption on transportation cost are ambiguous; it depends upon the magnitude of the size of country. An increase in transportation cost of home country will raise the domestic price level and decline the consumption for a small country. Contrarily, an increase in transportation cost of home country will decrease the domestic price level and increase the consumption for a large country.