Adapting to within-country export barriers: Evidence from the Japan 2011 Tsunami

How do exports respond to changes in domestic trade costs? In particular how strongly are exports from one port affected by changes in the cost of exporting at neighbouring ports? To answer these questions we extend the standard trade model with heterogeneous firms to have a multiple port structure where exporting is subject to port specific local transportation costs and port specific fixed export costs as well as international bilateral trade costs. We derive a gravity equation with multiple ports and show that gravity distortion due to firm heterogeneity is conditional on port comparative advantage and resulting substitution of export across differentiated ports. We present evidence of the substitution effect using the 2011 Great East Japan Earthquake and following tsunami. This event allows us to measure the response of trade on ports not directly affected by the disaster. We detect a substitution effect for aggregate trade as well as differentiation at the sectoral level and by destination.