Assessing the Global Impact of Transit Countries in a Gravity Model

Richard Friberg, Mario Milone and Katrin Tinn

No 19407, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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).

Keywords: Border effects; Distance measure; Double marginalization; Gravity; Transit countries (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 F17 (search for similar items in EconPapers)
Date: 2024-08
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