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Trade costs and the Suez and Panama Canals

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  • Jules Hugot
  • Camilo Umana Dajud

Abstract

Current estimates offer a puzzling picture of the magnitude and historical evolution of the distance elasticity of trade. We take advantage of historical episodes that changed bilateral distance to estimate the distance elasticity in the time dimension and characterize its evolution over time. The openings of the Suez and Panama Canals -- as well as the closure of the Suez Canal from 1967 to 1975 -- allow us to control for unobserved time-invariant country pair characteristics in a gravity setting. Our estimates show that the impact of distance on trade remains particularly low, even if it has increased during the last half century. These results reconcile the distance elasticity of trade with its two components: the elasticity of trade to trade costs and the elasticity of trade costs to distance. In a second stage, we use these estimates to quantify the trade and welfare effects associated with the openings of the Suez and Panama Canals. We also perform the counterfactual exercise of closing the Panama Canal in 2012 to evaluate its current welfare effect.

Suggested Citation

  • Jules Hugot & Camilo Umana Dajud, 2016. "Trade costs and the Suez and Panama Canals," Working Papers 2016-29, CEPII research center.
  • Handle: RePEc:cii:cepidt:2016-29
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    References listed on IDEAS

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    1. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
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    5. Michel Fouquin & Jules Hugot, 2016. "Back to the Future: International Trade Costs and the Two Globalizations," Vniversitas Económica 015130, Universidad Javeriana - Bogotá.
    6. Koen Jochmans, 2017. "Two-Way Models for Gravity," The Review of Economics and Statistics, MIT Press, vol. 99(3), pages 478-485, July.
    7. Michel Fouquin & Jules Hugot, 2016. "Two Centuries of Bilateral Trade and Gravity data: 1827-2014," Vniversitas Económica 015129, Universidad Javeriana - Bogotá.
    8. Koen Jochmans, 2017. "Two-Way Models for Gravity," The Review of Economics and Statistics, MIT Press, vol. 99(3), pages 478-485, July.
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    Cited by:

    1. Réka Juhász & Claudia Steinwender, 2018. "Spinning the Web: The Impact of ICT on Trade in Intermediates and Technology Diffusion," NBER Working Papers 24590, National Bureau of Economic Research, Inc.
    2. Shepard, Jun U. & Pratson, Lincoln F., 2020. "Maritime piracy in the Strait of Hormuz and implications of energy export security," Energy Policy, Elsevier, vol. 140(C).
    3. Stephan E. Maurer & Ferdinand Rauch, 2019. "Economic Geography Aspects of the Panama Canal," CEP Discussion Papers dp1633, Centre for Economic Performance, LSE.
    4. Jules Hugot & Camilo Umana Dajud, 2017. "Breaking Away from Icebreakers: The Effect of Melting Distances on Trade and Welfare," Working Papers 2017-24, CEPII research center.

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    More about this item

    Keywords

    Distance elasticity; Distance Puzzle; Gravity; Suez Canal; Panama Canal; Welfare effects of trade;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • N70 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - General, International, or Comparative

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