This paper provides a theoretical and empirical analysis of cross-state externalities associated with gun regulations in the context of the gun trafficking market. Using gun tracing data, which identify the source state for crime guns recovered in destination states, we find that firearms in this market tend to flow from states with weak gun laws to states with strict gun laws, satisfying a necessary condition for the existence of cross-state externalities in the theoretical model. We also find an important role for transportation costs in this market, with gun flows more significant between nearby states; this finding suggests that externalities are spatial in nature. Finally, we present evidence that criminal possession of guns is higher in states exposed to weak gun laws in nearby states.