Fly the unfriendly skies: The role of transport costs in gravity models of trade

Abstract

We exploit exogenous shocks to flight distances over time to estimate the distance effect in airborne trade within panel regressions. We find a negative distance effect, which we interpret as evidence of a link between transportation costs and airborne trade. Notably, this relationship is driven almost entirely by changes at the extensive margin. Specifically, trade in HS 6 product categories with intermittent trading histories becomes dormant when flight distances increase. Conversely, the intensive margin of trade remains largely unaffected.