Working Paper: NBER ID: w29015
Authors: Sharat Ganapati; Woan Foong Wong; Oren Ziv
Abstract: We study the global trade network and quantify its trade and welfare impact. We document that the trade network is a hub-and-spoke system where 80% of trade is shipped indirectly, nearly all via entrepôts—major hubs that facilitate trade between many origins and destinations. We estimate indirect-shipping-consistent trade costs using a model where shipments can be sent indirectly through an endogenous transport network and develop a geography-based instrument to estimate scale economies in shipping. Network and scale effects propagate local trade cost changes globally. Counterfactual infrastructure improvements at entrepôts generate ten times the global welfare impact relative to non-entrepôts.
Keywords: No keywords provided
JEL Codes: F10; F12; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| entrepots facilitate the flow of goods (F10) | lower trade costs for spokes (F12) |
| changes in non-transportation trade costs at an entrepot (F10) | extensive impacts across the trade network (F69) |
| network effects and scale economies (D85) | amplify welfare gains (D69) |
| increasing shipping volumes (L87) | decreasing trade costs (F12) |
| 10% increase in overall origin-destination trade (F69) | 0.017 decrease in trade costs (F19) |
| improvements in transport infrastructure at entrepots (R42) | higher global welfare impact (F69) |