The gravity of distance: evidence from a trade embargo

Abstract

On 5 June 2017, an airspace blockade was imposed on the State of Qatar by Bahrain, Saudi Arabia, United Arab Emirates (neighboring countries), and Egypt. We exploit this exogenous increase in air transportation costs toward non-blockading countries to examine the effect of increased travel distance, due to re-routing, on bilateral trade. Based on a gravity model estimated using a Poisson pseudo-maximum likelihood estimator, we find a distance elasticity of imports between −0.3 and −0.5. Overcoming the limitations of cross-sectional studies and taking advantage of this quasi-natural experiment, our findings are robust and revise downward previous estimates of the distance elasticity.