trade costs · Julian Hinz

Navigating Shocks: The Ripple Effects of Shipping Route Closures

Carsten Philipp Brockhaus — Thu, 06 Aug 2026 00:00:00 +0000

Rerouting of global shipping under a Red Sea closure: traffic shifts from the Suez Canal to the Cape of Good Hope.

Who bears the cost when a maritime chokepoint is disrupted? Combining ship-level AIS trajectories, port-call logs, freight indices, customs data and Turkish shipment-level data, we document the trade effects of the 2023 Red Sea crisis: seaborne trade between affected country pairs fell, rerouted around the Cape of Good Hope, and recovered within months as freight costs surged, while some exporters shifted persistently toward air freight.

We build a quantitative trade model in which freight costs are endogenous to modal and route choice through congestion, a global shipping capacity constraint, and monopoly toll-setting by canal authorities. Calibrated to observed route choices and canal revenues, the model implies that a permanent Red Sea closure lowers global real income only mildly. Because the Suez Canal Authority, pricing to maximize revenue, already captures much of the route’s surplus, the loss falls on the toll collector: Egypt forgoes 3.0 percent of real income, almost all of it canal rent, while the large trading economies each lose less than 0.02 percent.

A transit fee on the Strait of Hormuz, a chokepoint without maritime substitutes, instead concentrates losses on the Gulf economies themselves. Whether a chokepoint has substitutes, and who prices it, jointly determine who pays for its disruption.

The View from Space: Theory-based Time-varying Distances in the Gravity Model

Julian Hinz — Sat, 15 Oct 2022 00:00:00 +0000

Aggregate distances over time (Exponents in generalized mean of -1 and 1). Commonly used time-invariant distances from Mayer and Zignago (2011) for comparison.

In this paper I use a general representation of the gravity model in international economics to derive a theory-consistent spatial aggregation of bilateral frictions. I apply the method to compute time-varying country-to-country distances, used in estimations of the gravity model in fields ranging from international trade, to foreign direct investment and migration. The aggregation takes the form of a weighted generalized mean, where the weights reflect the spatial distribution of economic activity in a country and the elasticity of the bilateral friction in question is a key parameter. I use annually available satellite imagery on nighttime light emissions for highly-detailed information on the economic geography of countries, capturing urban and rural areas and reflecting changes over time. Employing the computed distances in an application to the gravity equation of international trade yields a number of noteworthy results. Exploiting the time variation, I can estimate the distance elasticity while controlling for unobserved country-pair characteristics. Estimates for the distance coefficient are in the range of -0.5 and -1. Furthermore, the distances' use yields important consequences for estimates of other gravity variables: the border coefficient, i.e. the often puzzlingly large relative difference between internal and external trade, is reduced by between 30% and 50%. Regressions using simulated data confirm the theoretical and empirical findings.

Potential Economic Benefits of the African Continental Free Trade Area for Africa and the EU

Julian Hinz — Sat, 01 Jan 2022 00:00:00 +0000

Despite some growth, intra-African trade activity remains at low levels and falls far behind the levels of internal trade observed in more integrated regions like the EU. The European continent remains a major trading partner, but its share in total African exports and imports has decreased from nearly 50% to 35% between 2000 and 2020. Our simulations suggest that implementing the African Continental Free Trade Area (AfCFTA) agreement can lead to substantial welfare gains in Africa, but only if tariff reductions are accompanied by a significant lowering of Non-Tariff-Barriers (NTBs). If NTBs are reduced on a multilateral basis, the EU’s declining trade share with Africa might also be reversed. European governments and EU institutions should therefore have an incentive to provide technical and financial assistance — possibly within the framework of the existing WTO-led aid-for-trade initiative — to help AfCFTA economies lowering NTBs on a multilateral basis.

State Dependence and Unobserved Heterogeneity in the Extensive Margin of Trade

Julian Hinz — Tue, 06 Jul 2021 00:00:00 +0000

Determinants of the Extensive Margin of Trade — Gravity and Persistence.

We study the role and drivers of persistence in the extensive margin of bilateral trade. Motivated by a stylized heterogeneous firms model of international trade with market entry costs, we consider dynamic three-way fixed effects binary choice models and study the corresponding incidental parameter problem. The standard maximum likelihood estimator is consistent under asymptotics where all panel dimensions grow at a constant rate, but it has an asymptotic bias in its limiting distribution, invalidating inference even in situations where the bias appears to be small. Thus, we propose two different bias-corrected estimators. Monte Carlo simulations confirm their desirable statistical properties. We apply these estimators in a reassessment of the most commonly studied determinants of the extensive margin of trade. Both true state dependence and unobserved heterogeneity contribute considerably to trade persistence and taking this persistence into account matters significantly in identifying the effects of trade policies on the extensive margin.

Critically Important: The Heterogeneous Effect of Diplomatic Tensions on Trade

Julian Hinz — Wed, 15 Jul 2020 00:00:00 +0000

Impact of diplomatic tensions on UK - Russia trade. Russian exports to UK and EU (left), Russian exports to UK by select HS sections (right).

With global value chains interlocking today’s economies, what is the impact of diplomatic tensions on international trade? We exploit variation in monthly data on imports, a measure of imported input use in the domestic economy, and the incidence of bilateral diplomatic tensions to show that their impact on trade is heterogeneous across countries and industries. Trade in industries that are crucial for domestic production is more sensitive to political tensions. We expose the underlying mechanism in a simple framework before testing it in reduced form.