The Gravity of Distance: Evidence from a Trade embargo

Abstract

On June 5, 2017, an airspace blockade was imposed on the State of Qatar by four of its neighbors: Saudi Arabia, Bahrain, United Arab Emirates, and Egypt. We study the exogenous increase in air transportation costs with non-blockading countries to examine the effect of increased travel distance on bilateral trade. Based on a gravity model estimated with a Poisson pseudo-maximum likelihood, we find a distance elasticity of trade between -0.3 and -0.5. Our findings revise downwards cross-sectional estimates of the distance elasticity of trade and confirm more recent estimates exploiting similar time-varying shocks to distance.