Triangle inequalities in international trade: The neglected dimension ✩
Journal
Journal of International Economics
ISSN
0022-1996
Type
journal article
Date Issued
2024-10-22
Author(s)
Abstract
Estimating trade costs is key to understanding the welfare effects of trade liberalizations. Cost minimization implies that the triangle inequality (TI) of international trade costs must hold for any three countries to avoid cross-border arbitrage. We show that rerouting opportunities might arise when trade costs change because a shipment through an intermediary becomes cheaper. The TI captures such rerouting opportunities. However, standard approaches to calculating the gains from trade liberalizations ignore this no-arbitrage condition. We outline an estimation routine that is model-consistent and respects the TI. Counterfactual exercises suggest that the welfare gains from rerouting after trade liberalizations can be substantial.
HSG Classification
contribution to scientific community
Refereed
yes
Publisher
Elsevier BV
Volume
152
Subject(s)
File(s)![Thumbnail Image]()
Name
Triangle_JIE.pdf
Size
2.88 MB
Format
Adobe PDF
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