Entrepôt: Hubs, Scale, and Trade Costs

We study the global trade network and quantify its trade and welfare impact. We document that the trade network is a hub-and-spoke system where 80 percent of trade is shipped indirectly and largely via entrepôts—major hubs that facilitate trade between many origins and destinations. We estimate indirect-shipping-consistent trade costs using a model where shipments can be sent indirectly through an endogenous transport network and develop a geography-based instrument to estimate scale economies in shipping. Network and scale effects propagate local trade cost changes globally. Counterfactual infrastructure improvements at entrepôts generate ten times the global welfare impact relative to nonentrepôts. (JEL F12, F14, L92)