IDEAS home Printed from https://ideas.repec.org/a/ecj/econjl/v113y2003i484p21-42.html
   My bibliography  Save this article

Overcoming Informational Barriers to International Resource Allocation: Prices and Ties

Author

Listed:
  • James E. Rauch

    (University of California, San Diego and NBER)

  • Alessandra Casella

    (Columbia University, CEPR, GREQAM and NBER)

Abstract

Incomplete information creates matching friction that interferes with the ability of prices to allocate scarce resources across countries but can be overcome by international information--sharing networks. When the difference between country factor--endowment ratios is large relative to network ties, efficient arbitrage breaks down, the price (wage) of each country"s immobile resource becomes partially insulated from changes in foreign supply, and trade liberalisation causes less resource price convergence. The model is applied to the trade and wages debate, to whether ties can reduce world welfare through trade diversion, and to the effect of ties on trade in differentiated versus homogeneous products. Copyright Royal Economic Society 2003.

Suggested Citation

  • James E. Rauch & Alessandra Casella, 2003. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," Economic Journal, Royal Economic Society, vol. 113(484), pages 21-42, January.
  • Handle: RePEc:ecj:econjl:v:113:y:2003:i:484:p:21-42
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    2. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    3. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-1125, December.
    4. James E. Rauch & Vitor Trindade, 2000. "Information and Globalization: Wage Co-Movements, Labor Demand Elasticity, and Conventional Trade Liberalization," NBER Working Papers 7671, National Bureau of Economic Research, Inc.
    5. James E. Rauch & Alessandra Casella, 2003. "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties," Economic Journal, Royal Economic Society, vol. 113(484), pages 21-42, January.
    6. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-623, June.
    7. 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, March.
    8. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
    9. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    10. Granovetter, Mark, 1995. "Coase Revisited: Business Groups in the Modern Economy," Industrial and Corporate Change, Oxford University Press, vol. 4(1), pages 93-130.
    11. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    12. James E. Rauch & Alessandra Casella, 1998. "Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties," NBER Working Papers 6628, National Bureau of Economic Research, Inc.
    13. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
    14. 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.
    15. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-316, May.
    16. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    17. James E. Rauch & Vitor Trindade, 2002. "Ethnic Chinese Networks In International Trade," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 116-130, February.
    18. Gereffi, Gary, 1999. "International trade and industrial upgrading in the apparel commodity chain," Journal of International Economics, Elsevier, vol. 48(1), pages 37-70, June.
    19. Belderbos, Rene & Sleuwaegen, Leo, 1998. "Tariff jumping DFI and export substitution: Japanese electronics firms in Europe," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 601-638, September.
    20. Leamer, E.E., 1995. "The Heckscher-Ohlin Model in Theory and Practice," Princeton Studies in International Economics 77, International Economics Section, Departement of Economics Princeton University,.
    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. Casella, Alessandra & Rauch, James E, 1998. "Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties," CEPR Discussion Papers 1978, C.E.P.R. Discussion Papers.
    2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    3. Hatzigeorgiou, Andreas & Lodefalk, Magnus, 2017. "Anti-Migration as a Threat to Internationalization?," Ratio Working Papers 302, The Ratio Institute.
    4. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2005. "The trade-creating effects of business and social networks: evidence from France," Journal of International Economics, Elsevier, vol. 66(1), pages 1-29, May.
    5. Anthony Briant & Pierre-Philippe Combes & Miren Lafourcade, 2014. "Product Complexity, Quality of Institutions and the Protrade Effect of Immigrants," The World Economy, Wiley Blackwell, vol. 37(1), pages 63-85, January.
    6. Christian Volpe Martincus & Jerónimo Carballo, 2010. "Is Export Promotion Effective in Developing Countries? Firm-Level Evidence on the Intensive and Extensive Margins of Exports," IDB Publications (Working Papers) 36763, Inter-American Development Bank.
    7. Hoekman & Bernard & Winters, L. Alan, 2005. "Trade and employment : stylized facts and research findings," Policy Research Working Paper Series 3676, The World Bank.
    8. Wolf, Nikolaus, 2008. "Was Germany Ever United? Evidence from Intra- and International Trade, 1885 -1933," CEPR Discussion Papers 6796, C.E.P.R. Discussion Papers.
    9. Festus Ebo Turkson, 2011. "Logistics and Bilateral Exports in Developing Countries: A Multiplicative Form Estimation of the Logistics Augmented Gravity Equation," Discussion Papers 11/06, University of Nottingham, CREDIT.
    10. Casella, Alessandra & Rauch, James E., 2002. "Anonymous market and group ties in international trade," Journal of International Economics, Elsevier, vol. 58(1), pages 19-47, October.
    11. Mayer, Thierry & Pierre-Phillippe Combes & Miren Lafourcade, 2003. "Can Business and Social Networks Explain the Border Effect Puzzle?," Royal Economic Society Annual Conference 2003 150, Royal Economic Society.
    12. Hatzigeorgiou, Andreas & Lodefalk, Magnus, 2018. "Do Migrants Facilitate Internationalization? A Review of the Literature," Working Papers 2018:11, Örebro University, School of Business, revised 19 Dec 2019.
    13. Joshua J. Lewer & Hendrik Van den Berg, 2007. "Religion and International Trade: Does the Sharing of a Religious Culture Facilitate the Formation of Trade Networks?," American Journal of Economics and Sociology, Wiley Blackwell, vol. 66(4), pages 765-794, October.
    14. Michael Bailey & Abhinav Gupta & Sebastian Hillenbrand & Theresa Kuchler & Robert Richmond & Johannes Stroebel, 2020. "International Trade and Social Connectedness," CESifo Working Paper Series 8248, CESifo.
    15. Volpe Martincus, Christian & Carballo, Jerónimo, 2008. "Is export promotion effective in developing countries? Firm-level evidence on the intensive and the extensive margins of exports," Journal of International Economics, Elsevier, vol. 76(1), pages 89-106, September.
    16. Anthony Briant & Pierre-Philippe Combes & Miren Lafourcade, 2014. "Product Complexity, Quality of Institutions and the Protrade Effect of Immigrants," The World Economy, Wiley Blackwell, vol. 37(1), pages 63-85, January.
    17. Patricia Sourdin & Richard Pomfret, 2012. "Trade Facilitation," Books, Edward Elgar Publishing, number 14596.
    18. James E. Anderson, 1999. "Why Do Nations Trade (So Little)?," Boston College Working Papers in Economics 428, Boston College Department of Economics.
    19. Hélène Ehrhart & Maëlan Le Goff & Emmanuel Rocher & Raju Jan Singh, 2012. "Does Migration Foster Exports? An African Perspective," Working Papers 2012-38, CEPII research center.
    20. Nicita, Alessandro & Olarreaga, Marcelo, 2000. "Exports and information spillovers," Policy Research Working Paper Series 2474, The World Bank.

    More about this item

    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:ecj:econjl:v:113:y:2003:i:484:p:21-42. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/resssea.html .

    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: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/resssea.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.