joint with Woan Foong Wong and Oren Ziv.

Entrepôts are hubs that facilitate trade between various origins and destinations. We study these entrepôts, the network they form, and their impact on international trade. We document novel facts about the global trading network: the trade network is a hub-and-spoke system with 80% of trade shipped indirectly via these hubs using larger ships, suggesting that, by concentrating shipments, entrepôts reduce trade costs through scale economies. We estimate direct and indirect trade costs by building a model of endogenous entrepôt formation incorporating route choice by producers into a Ricardian setting and develop a geography-based instrument to estimate a leg-level scale elasticity. Simulating the counterfactual opening of the Arctic Passage and Brexit, we find that network spillovers—impacts on countries unaffected by direct changes—double baseline welfare gains, with scale economies in shipping further tripling them. Counterfactual infrastructure improvements show that entrepôts are globally pivotal nodes and concentrate network spillovers regionally.

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