Date of Award

Spring 6-9-2026

Document Type

Thesis (Undergraduate)

Department

Economics

First Advisor

Matthew Grant

Second Advisor

Bruce Sacerdote

Abstract

This paper exploits the 2023 Houthi attacks on shipping through the Bab el-Mandeb Strait at the entrance to the Red Sea and the subsequent mass rerouting around the Cape of Good Hope to estimate modern-day elasticities with respect to effective trade cost. This event is unique among chokepoint disruptions as it did not lead to a complete blockage. Instead, many ships voluntarily rerouted away the area, but not all. This paper uses a structural approach to infer unobservable costs incurred by inframarginal Red Sea shippers. This paper combines a reduced-form gravity specification with a discrete route-choice model where ships select between Red Sea and Cape of Good Hope routes based on minimized costs. The structure allows the recovery of a time-varying term accounting for the additional cost of attack. This paper finds modern-day elasticities of trade with respect to effective cost to be lower than estimates from earlier periods, specifically finding a 1% increase in structurally effective cost to be associated with a decrease in bilateral trade of 0.215%, suggesting modern trade is more resilient to trade disruption than that of the 1960/70s. Elasticities are higher for OECD trade flows. Additionally, this paper finds oil/gas trade to be generally more elastic and therefore more exposed to chokepoint risk.

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