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Information, International Substitutability, and Globalization

  • James E. Rauch
  • Vitor Trindade

Improved information allows home firms to rule out more potential foreign trade partners in advance of attempting to form a match. The increased responsiveness to country wage or goods price differentials resulting from this better first cut causes the general-equilibrium elasticity of substitution between national labor forces or the Armington elasticity of substitution between domestic and imported output to increase. Further results include an increase in the elasticity of domestic labor demand, an increase in the extent to which reductions in conventional trade barriers equalize national wages, and reduced "natural protection" for domestic producers.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282803322157089
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 3 (June)
Pages: 775-791

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:775-791
Note: DOI: 10.1257/000282803322157089
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  1. Gene M. Grossman & Elhanan Helpman, 2002. "Outsourcing in a Global Economy?," Harvard Institute of Economic Research Working Papers 1966, Harvard - Institute of Economic Research.
  2. Portes, Richard & Rey, Hélène, 1999. "The Determinants of Cross-Border Equity Flows," CEPR Discussion Papers 2225, C.E.P.R. Discussion Papers.
  3. Andrew B. Bernard & J. Bradford Jensen, 1997. "Exceptional Exporter Performance: Cause, Effect, or Both?," NBER Working Papers 6272, National Bureau of Economic Research, Inc.
  4. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
  5. 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.
  6. Bruce A. Blonigen & Wesley W. Wilson, 1999. "Explaining Armington: What Determines Substitutability Between Home and Foreign Goods?," Canadian Journal of Economics, Canadian Economics Association, vol. 32(1), pages 1-21, February.
  7. Olarreaga, Marcelo, 2000. "Exports and Information Spillovers," CEPR Discussion Papers 2560, C.E.P.R. Discussion Papers.
  8. 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.
  9. Chadha, R. & Pohit, S. & Deardorff, A.V. & Stern, R.M., 1997. "Analysis of India's Policy Reforms," Working Papers 413, Research Seminar in International Economics, University of Michigan.
  10. Helpman, Elhanan, 1981. "International trade in the presence of product differentiation, economies of scale and monopolistic competition : A Chamberlin-Heckscher-Ohlin approach," Journal of International Economics, Elsevier, vol. 11(3), pages 305-340, August.
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