Intermediated Trade
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Costinot_Intermediated trade.pdf
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329.35 KB
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Author(s)
Antras, Pol
Costinot, Arnaud
Date Issued
December 2010
Journal
American Economic Review
Publisher
American Economic Association
Citation
forthcoming in American Economic Review
Version
Author's final manuscript
Abstract
This paper develops a simple model of international trade with intermediation. We consider
an economy with two islands and two types of agents, farmers and traders. Farmers can produce
two goods, but in order to sell these goods in centralized (Walrasian) markets, they need to be
matched with a trader, and this entails costly search. In the absence of search frictions, our
model reduces to a standard Ricardian model of trade. We use this simple model to contrast
the implications of changes in the integration of Walrasian markets, which allow traders from
different islands to exchange their goods, and changes in the access to these Walrasian markets,
which allow farmers to trade with traders from different islands. We find that intermediation
always magni fies the gains from trade under the former type of integration, but leads to more
nuanced welfare results under the latter, including the possibility of aggregate losses.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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