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  3. American Economic Journal: Macroeconomics
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  5. Entrepôt: Hubs, Scale, and Trade Costs

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Entrepôt: Hubs, Scale, and Trade Costs

  • Sharat Ganapati
  • Woan Foong Wong
  • Oren Ziv
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

We study the global trade network and quantify its trade and welfare impact. We document that the trade network is a hub-and-spoke system where 80% of trade is shipped indirectly, nearly all via entrepôts—major hubs that facilitate trade between many origins and destinations. We estimate indirect-shipping-consistent trade costs using a model where shipments can be sent indirectly through an endogenous transport network and develop a geography-based instrument to estimate scale economies in shipping. Network and scale effects propagate local trade cost changes globally. Counterfactual infrastructure improvements at entrepôts generate ten times the global welfare impact relative to non-entrepôts.

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