Real Effects of Information Frictions: When the States and the Kingdom Became United
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aer.20150681.pdf
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916.45 KB
Format
Adobe PDF
Checksum (MD5)
821d2612c790781531f3b803e65392e1
Author(s)
Steinwender, Claudia
Date Issued
March 2018
Journal
American Economic Review
Publisher
American Economic Association
Citation
Steinwender, Claudia. “Real Effects of Information Frictions: When the States and the Kingdom Became United.” American Economic Review 108, no. 3 (March 2018): 657–696.
Version
Final published version
Abstract
This paper exploits a unique historical experiment to estimate how information frictions distort international trade: the establishment of the transatlantic telegraph in 1866. I use newly collected data on cotton prices, trade, and information flows from historical newspapers and find that the average and volatility of the transatlantic price difference fell after the telegraph, while average trade flows increased and became more volatile. Using a trade model in which exporters use the latest news about a foreign market to forecast expected prices, I estimate the efficiency gains of the telegraph to be equivalent to 8 percent of export value.
MIT Department
Sloan School of Management
Terms of Use
Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1257/aer.20150681
