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Search and the Path-Dependency of Trade

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Abstract

This paper investigates the implications of imperfect information and matching/searching for international trade theory. I develop an illustrative model where firms find such partners by a search through successive matches. The consequences include linking today's import demand patterns to past changes in costs, protection and interest rates. Today's policy decisions will likewise affect future trade. Trade diversion from a preferential trading agreement may well persist as informational diversion well after the preferential agreement has been scrapped. This has important implications for the timing of trade liberalisation.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/Huw_2006_12.pdf
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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2006_12.

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Date of creation: May 2006
Date of revision: May 2006
Handle: RePEc:lbo:lbowps:2006_12

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Keywords: Trade; Protection; Search; Outsourcing.;

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  17. Caroline L. Freund & John McLaren, 1999. "On the dynamics of trade diversion: evidence from four trade blocs," International Finance Discussion Papers 637, Board of Governors of the Federal Reserve System (U.S.).
  18. George Alessandria, 2004. "International Deviations From The Law Of One Price: The Role Of Search Frictions And Market Share," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1263-1291, November.
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