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Overcoming Informational Barriers to International Resource Allocation: Prices and Ties

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  • James E. Rauch

    (University of California, San Diego and NBER)

  • Alessandra Casella

    (Columbia University, CEPR, GREQAM and NBER)

Abstract

Incomplete information creates matching friction that interferes with the ability of prices to allocate scarce resources across countries but can be overcome by international information--sharing networks. When the difference between country factor--endowment ratios is large relative to network ties, efficient arbitrage breaks down, the price (wage) of each country"s immobile resource becomes partially insulated from changes in foreign supply, and trade liberalisation causes less resource price convergence. The model is applied to the trade and wages debate, to whether ties can reduce world welfare through trade diversion, and to the effect of ties on trade in differentiated versus homogeneous products. Copyright Royal Economic Society 2003.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 113 (2003)
Issue (Month): 484 (January)
Pages: 21-42

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Handle: RePEc:ecj:econjl:v:113:y:2003:i:484:p:21-42

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References

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  1. James E. Rauch & Alessandra Casella, 1998. "Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties," NBER Working Papers 6628, National Bureau of Economic Research, Inc.
  2. G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, 03.
  3. R Portes & H Rey, 2000. "The Determinants Of Cross-Border Equity Flows," CEP Discussion Papers dp0446, Centre for Economic Performance, LSE.
  4. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-16, May.
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  6. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  7. Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
  8. Rauch, J E & Casella, Alessandra, 2001. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," University of California at San Diego, Economics Working Paper Series qt2k8626fr, Department of Economics, UC San Diego.
  9. Belderbos, Rene & Sleuwaegen, Leo, 1998. "Tariff jumping DFI and export substitution: Japanese electronics firms in Europe," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 601-638, September.
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  12. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  13. James E. Rauch & Vitor Trindade, 2000. "Information and Globalization: Wage Co-Movements, Labor Demand Elasticity, and Conventional Trade Liberalization," NBER Working Papers 7671, National Bureau of Economic Research, Inc.
  14. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
  15. Leamer, E.E., 1995. "The Heckscher-Ohlin Model in Theory and Practice," Princeton Studies in International Economics 77, International Economics Section, Departement of Economics Princeton University,.
  16. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  17. Gereffi, Gary, 1999. "International trade and industrial upgrading in the apparel commodity chain," Journal of International Economics, Elsevier, vol. 48(1), pages 37-70, June.
  18. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
  19. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  20. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
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