The Earth Is Not Flat: Bilateral Elevation as a Component of Trade Costs

Weizhao Sun

Review of International Economics, 2025, vol. 33, issue 3, 594-615

Abstract: This paper quantifies the trade effects of effective bilateral elevation (EBE), representing the transportation cost incurred when trucks go uphill and downhill between countries. Introducing an instrumental variable for EBE, the paper reveals that a one‐percent rise in EBE leads to a 0.046% reduction in trade. This impact varies across regions and industries, with landlocked countries experiencing effects more than nine‐fold. The impact is more pronounced in industries with higher weight‐to‐value ratios. Employing a multi‐sector Armington model, the paper estimates that removing bilateral elevations could lead to an average 1% increase in real wages.

Date: 2025
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