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  4. October 2024
  5. Entrepôt: Hubs, Scale, and Trade Costs

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Entrepôt: Hubs, Scale, and Trade Costs

  • Sharat Ganapati
  • Woan Foong Wong
  • Oren Ziv
American Economic Journal: Macroeconomics
vol. 16, no. 4, October 2024
(pp. 239–78)
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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 percent of trade is shipped indirectly and largely 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 nonentrepôts.

Citation

Ganapati, Sharat, Woan Foong Wong, and Oren Ziv. 2024. "Entrepôt: Hubs, Scale, and Trade Costs." American Economic Journal: Macroeconomics, 16 (4): 239–78. DOI: 10.1257/mac.20220250

Additional Materials

JEL Classification

  • F12 Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • F14 Empirical Studies of Trade
  • L92 Railroads and Other Surface Transportation
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