IDEAS home Printed from https://ideas.repec.org/a/sae/fortra/v57y2022i2p127-147.html
   My bibliography  Save this article

Preference Distortion, Information Cost and Comparative Advantage: A Theoretical Quest to Claim Trade Posture in Post-Pandemic Era

Author

Listed:
  • Tonmoy Chatterjee
  • Soumyananda Dinda

Abstract

This study argues that post-pandemic world may not necessarily follow the usual mechanism of trade. In fact, recent pandemic dragged down us to the trajectory of new normalcy. Economic behaviour under new normalcy has changed immensely following several distorted effects, namely preference distortion and information asymmetry. Such distortions change trade posture via gains from trade arguments under comparative advantage. Using the traditional Ricardian model with two countries, two goods and one factor, this study explores the effect of changes in consumer preferences on trade patterns based on comparative advantage and the significance of eliminating information uncertainty. To retain the pre-pandemic gains from such trade this study advocates for consideration of information cost associated with trade basket along with innovation. These results could be important for policymaking at least in post pandemic regime. Sensitivity analysis has also been constructed to capture the extent of changes in trade–autarky profit gaps. This study builds on the verge of economic crisis linking to pandemic and international trade. JEL Codes: C70, D81, F11, L15

Suggested Citation

  • Tonmoy Chatterjee & Soumyananda Dinda, 2022. "Preference Distortion, Information Cost and Comparative Advantage: A Theoretical Quest to Claim Trade Posture in Post-Pandemic Era," Foreign Trade Review, , vol. 57(2), pages 127-147, May.
    • Handle: RePEc:sae:fortra:v:57:y:2022:i:2:p:127-147
    DOI: 10.1177/00157325211060934
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/00157325211060934
    Download Restriction: no
    File URL: https://libkey.io/10.1177/00157325211060934?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jonathan Michie, 2020. "The covid-19 crisis – and the future of the economy and economics," International Review of Applied Economics, Taylor & Francis Journals, vol. 34(3), pages 301-303, May.
    2. Aaheli Ahmed & Debashis Chakraborty & Ranajoy Bhattacharyya, 2020. "The Recent Coronavirus (COVID-19) Pandemic: A Review of Issues for Indian Pharmaceutical Exports," Foreign Trade Review, , vol. 55(3), pages 418-435, August.
    3. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    4. Carmen M. Reinhart & Vincent R. Reinhart, 2015. "Financial Crises, Development, and Growth: A Long-term Perspective," The World Bank Economic Review, World Bank, vol. 29(suppl_1), pages 53-76.
    5. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 603-617, August.
    6. Enrique G. Mendoza, 2002. "Credit, Prices, and Crashes: Business Cycles with a Sudden Stop," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 335-392, National Bureau of Economic Research, Inc.
    7. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    8. Goddeeris, John H, 1984. "Medical Insurance, Technological Change, and Welfare," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 56-67, January.
    9. Deepankar Sinha & Virupaxi Bagodi & Debasri Dey, 2020. "The Supply Chain Disruption Framework Post COVID-19: A System Dynamics Model," Foreign Trade Review, , vol. 55(4), pages 511-534, November.
    10. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-239, March.
    11. Kristin J. Forbes, 2002. "Are Trade Linkages Important Determinants of Country Vulnerability to Crises?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 77-132, National Bureau of Economic Research, Inc.
    12. Asher Wolinsky, 1983. "Prices as Signals of Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(4), pages 647-658.
    13. Kristin Forbes, 2000. "The Asian Flu and Russian Virus: Firm-level Evidence on How Crises are Transmitted Internationally," NBER Working Papers 7807, National Bureau of Economic Research, Inc.
    14. Srivastava, S.K. & Sivaramane, N., 2020. "Income-induced effects of COVID-19 on the food consumption pattern of Indian households," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 33(Conferenc), December.
    15. Koichi Hamada & Shyam Sunder, 2005. "Information Asymmetry and the Problem of Transfers in Trade Negotiations and International Agencies," Working Papers 910, Economic Growth Center, Yale University.
    16. Zihui Ma & Leonard Cheng, 2003. "The Effects of Financial Crises on International Trade," NBER Working Papers 10172, National Bureau of Economic Research, Inc.
    17. Marjit, Sugata, 2007. "Trade theory and the role of time zones," International Review of Economics & Finance, Elsevier, vol. 16(2), pages 153-160.
    18. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    2. Zihui Ma & Leonard Cheng, 2005. "The Effects of Financial Crises on International Trade," NBER Chapters, in: International Trade in East Asia, pages 253-286, National Bureau of Economic Research, Inc.
    3. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    4. Kristin J. Forbes & Menzie D. Chinn, 2004. "A Decomposition of Global Linkages in Financial Markets Over Time," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 705-722, August.
    5. Nakatani, Ryota, 2017. "Structural vulnerability and resilience to currency crisis: Foreign currency debt versus export," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 132-143.
    6. Moser, Thomas, 2003. "What Is International Financial Contagion?," International Finance, Wiley Blackwell, vol. 6(2), pages 157-178, Summer.
    7. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    8. Fulan Wu, 2017. "Signaling Unobservable Quality Choice through Price and Advertising: The Case with Competing Firms," Manchester School, University of Manchester, vol. 85(2), pages 243-260, March.
    9. Forbes, Kristin J. & Abeysinghe, Tilak, 2002. "Trade Linkages and Output-Multiplier Effects: A Structural VAR," Working papers 4242-01, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Forbes, Kristin J., 2002. "Cheap labor meets costly capital: the impact of devaluations on commodity firms," Journal of Development Economics, Elsevier, vol. 69(2), pages 335-365, December.
    11. Bédhat Jean-Marc Atsebi & Jean-Louis Combes & Alexandru Minea, 2019. "The trade costs of financial crises," CERDI Working papers halshs-01990335, HAL.
    12. Ryota Nakatani, 2017. "The Effects of Productivity Shocks, Financial Shocks, and Monetary Policy on Exchange Rates: An Application of the Currency Crisis Model and Implications for Emerging Market Crises," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(11), pages 2545-2561, November.
    13. W H Boshoff, 2006. "The Transmission Of Foreign Financial Crises To South Africa: A Firm-Level Study," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 30(2), pages 61-85, August.
    14. Daher, Wassim & Mirman, Leonard J. & Santugini, Marc, 2012. "Information in Cournot: Signaling with incomplete control," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 361-370.
    15. G. E. Fruchter, 2009. "Signaling Quality: Dynamic Price-Advertising Model," Journal of Optimization Theory and Applications, Springer, vol. 143(3), pages 479-496, December.
    16. Giancarlo Marini & Giovanni Piersanti, 2012. "Models of Speculative Attacks and Crashes in International Capital Markets," CEIS Research Paper 245, Tor Vergata University, CEIS, revised 24 Jul 2012.
    17. Tilak Abeysinghe & Kristin Forbes, 2005. "Trade Linkages and Output‐Multiplier Effects: a Structural VAR Approach with a Focus on Asia," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 356-375, May.
    18. Daniela Rroshi & Michael Weichselbaumer, 2021. "What is in a price? Evidence on quality signaling for experience goods," Department of Economics Working Papers wuwp311, Vienna University of Economics and Business, Department of Economics.
    19. Erik Gronqvist & Douglas Lundin, 2009. "Incentives for clinical trials," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(5), pages 513-531.
    20. Konon, Alexander, 2012. "Direct and Indirect Crisis Effects on International Trade or: Is There a Chance to Employ an Income Stimulus to Stimulate Exports?," MPRA Paper 36363, University Library of Munich, Germany.

    More about this item

    Keywords

    Pandemic; international trade; preferences; income distribution; information and two-stage game;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:fortra:v:57:y:2022:i:2:p:127-147. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.