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Middlemen Margins And Globalization

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Author Info

  • Dilip Mookherjee

    ()
    (Department of Economics, Boston University)

  • Pranab Bardhan

    (Department of Economics, University of California, Berkeley)

  • Masatoshi Tsumagari

    ()
    (Department of Economics, Keio University)

Abstract

We provide a competitive theory of middlemen or entrepreneurs who develop brand-name reputations necessary to overcome product quality moral hazard problems, embedded in a Heckscher-Ohlin model of North-South trade. Agents with heterogeneous entrepreneurial abil- ities sort into different sectors and occupations, with endogenous inter- sectoral mobility. In some contexts competitive equilibrium is charac- terized by restricted inter-sectoral mobility; bene ts of trade liberal- ization in the South accrue disproportionately to middlemen, North- South factor price differences grow, and offshoring reduces inequality in the South. In other contexts there is enough mobility; classical Stolper-Samuelson and factor price equalization results hold.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2011-034.

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Length: 48 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:bos:wpaper:wp2011-034

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Keywords: middlemen; reputation; inequality; trade liberalization; North-South trade;

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References

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  1. Margaret McMillan & Dani Rodrik & Karen Horn Welch, 2002. "When Economic Reform Goes Wrong: Cashews in Mozambique," NBER Working Papers 9117, National Bureau of Economic Research, Inc.
  2. Pol Antràs & Arnaud Costinot, 2011. "Intermediated Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1319-1374.
  3. Caballero, Richard J. & Antras, Pol, 2010. "On the Role of Financial Frictions and the Saving Rate during Trade Liberalizations," Scholarly Articles 4784027, Harvard University Department of Economics.
  4. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2008. "Inequality and Unemployment in a Global Economy," NBER Working Papers 14478, National Bureau of Economic Research, Inc.
  5. Ann Harrison & John McLaren & Margaret S. McMillan, 2010. "Recent Findings on Trade and Inequality," NBER Working Papers 16425, National Bureau of Economic Research, Inc.
  6. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
  7. Verhoogen, Eric A., 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," CEPR Discussion Papers 6385, C.E.P.R. Discussion Papers.
  8. Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics.
  9. Karabay, Bilgehan & McLaren, John, 2010. "Trade, offshoring, and the invisible handshake," Journal of International Economics, Elsevier, vol. 82(1), pages 26-34, September.
  10. Timothy Van Zandt & Roy Radner, 1998. "Real-Time Decentralized Information Processing and Returns to Scale," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1233, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Rossi-Hansberg, Esteban & Garicano, Luis & Antras, Pol, 2006. "Offshoring in a Knowledge Economy," Scholarly Articles 3196323, Harvard University Department of Economics.
  12. Shang-Jin Wei & Jaebin Ahn & Amit K. Khandelwal, 2010. "The Role of Intermediaries in Facilitating Trade," Working Papers id:2557, eSocialSciences.
  13. L. Alan Winters & Neil McCulloch & Andrew McKay, 2004. "Trade Liberalization and Poverty: The Evidence So Far," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 72-115, March.
  14. Gene M. Grossman & Esteban Rossi-Hansberg, 2006. "Trading Tasks: A Simple Theory of Offshoring," NBER Working Papers 12721, National Bureau of Economic Research, Inc.
  15. Jonathan Vogel & Arnaud Costinot, 2008. "Matching and Inequality in the World Economy," 2008 Meeting Papers 879, Society for Economic Dynamics.
  16. José Wynne, 2005. "Wealth as a Determinant of Comparative Advantage," American Economic Review, American Economic Association, vol. 95(1), pages 226-254, March.
  17. Macchiavello, Rocco, 2010. "Development Uncorked: Reputation Acquisition in the New Market for Chilean Wines in the UK," CEPR Discussion Papers 7698, C.E.P.R. Discussion Papers.
  18. Marcel Fafchamps & Ruth Vargas Hill, 2008. "Price Transmission and Trader Entry in Domestic Commodity Markets," Economic Development and Cultural Change, University of Chicago Press, vol. 56, pages 729-766.
  19. repec:hrv:faseco:4784031 is not listed on IDEAS
  20. Biglaiser, Gary & Friedman, James W., 1994. "Middlemen as guarantors of quality," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 12(4), pages 509-531, December.
  21. Mary Amiti & Donald R. Davis, 2012. "Trade, Firms, and Wages: Theory and Evidence," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 1-36.
  22. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(3), pages 551-75, August.
  23. Mussa, Michael, 1982. "Imperfect factor mobility and the distribution of income," Journal of International Economics, Elsevier, vol. 12(1-2), pages 125-141, February.
  24. John Hudson & Philip Jones, 2003. "International trade in 'quality goods': signalling problems for developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(8), pages 999-1013.
  25. Goksel, Turkmen, 2011. "Reputation and Learning: Japanese Car Exports to the United States," MPRA Paper 40805, University Library of Munich, Germany.
  26. Franziska Ohnsorge & Daniel Trefler, 2007. "Sorting It Out: International Trade with Heterogeneous Workers," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115(5), pages 868-892, October.
  27. Morisset, Jacques, 1998. "Unfair Trade? The Increasing Gap between World and Domestic Prices in Commodity Markets during the Past 25 Years," World Bank Economic Review, World Bank Group, World Bank Group, vol. 12(3), pages 503-26, September.
  28. Martin S Roth & Jean B Romeo, 1992. "Matching Product Category and Country Image Perceptions: A Framework for Managing Country-of-Origin Effects," Journal of International Business Studies, Palgrave Macmillan, vol. 23(3), pages 477-497, September.
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Citations

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Cited by:
  1. Marianna Belloc & Samuel Bowles, 2009. "International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2009-08, .
  2. Sandip Mitra & Dilip Mookherjee & Maximo Torero & Sujata Visaria, 2013. "Asymmetric Information and Middleman Margins: An Experiment with West Bengal Potato Farmers," Working Papers id:5545, eSocialSciences.

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