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Assessing the Global Impact of Transit Countries in a Gravity Model

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  • Friberg, Richard
  • Milone, Mario
  • Tinn, Katrin

Abstract

We study the global impact of rent extraction by countries that are in favorable locations to intermediate international trade. We propose a geography-based algorithm to measure land-sea distances and estimate a modified gravity trade model (1993-2016) which indicates that transit rents sharply lower trade. We use our model and simulations to gauge the welfare effects of transit rents. While transit countries benefit, general equilibrium price distortions impose substantial costs on all countries, interestingly also on those only indirectly affected (e.g. USA).

Suggested Citation

  • Friberg, Richard & Milone, Mario & Tinn, Katrin, 2024. "Assessing the Global Impact of Transit Countries in a Gravity Model," CEPR Discussion Papers 19407, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19407
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    More about this item

    Keywords

    Border effects; Distance measure; Double marginalization; Gravity; Transit countries;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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