General Trading Costs in Pure Theory of International Trade
AbstractWe use the HOS model of international trade to find a link between trading (including domestic trading or retailing) costs and pattern of trade, not just its effect on volume of trade. Even if we use symmetric iceberg type trading costs, unlike conventional unit cost approach, we generate relative price effects and prove that higher trading costs in labor-abundant countries will restrict volume of world trade by working against factor endowment bias and conversely for the capital-abundant nation if the trading sector is labor intensive and vice versa. Asymmetric trading cost between goods may have paradoxical output effects. Relatively capital-abundant country will be worse off with increasing trading cost, whereas once engaged in trade the labor-abundant country may gain from further increase in trading cost.
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Bibliographic InfoPaper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c014_011.
Length: 22 pages
Date of creation: Jun 2009
Date of revision:
Other versions of this item:
- Marjit, Sugata & Mandal, Biswajit, 2009. "General Trading Costs in Pure Theory of International Trade," MPRA Paper 19290, University Library of Munich, Germany.
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- F1 - International Economics - - Trade
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