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Trade Costs and the Suez and Panama Canals

Author

Listed:
  • Jules Hugot and Camilo Umana-Dajud
  • Camilo Umaña-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 and Camilo Umana-Dajud & Camilo Umaña-Dajud, 2017. "Trade Costs and the Suez and Panama Canals," Vniversitas Económica, Universidad Javeriana - Bogotá, vol. 0(0), pages 1-33, March.
    • Handle: RePEc:col:000416:015510
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    References listed on IDEAS

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    Citations

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    Cited by:

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    3. Kerem Cosar & Benjamin Thomas, 2021. "The geopolitics of international trade in Southeast Asia," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 207-219, February.
    4. 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).
    5. Stephan Maurer & Ferdinand Rauch, 2023. "Economic geography aspects of the Panama Canal," Oxford Economic Papers, Oxford University Press, vol. 75(1), pages 142-162.
    6. Pierre Cotterlaz, 2021. "Three essays on spatial frictions [Trois essais sur les frictions spatiales]," SciencePo Working papers tel-03436173, HAL.
    7. 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; Trade Costs; Gravity; Suez Canal; Panama Canal;
    All these keywords.

    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
    • I - Health, Education, and Welfare

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