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Trade and Welfare Implications of Networks

Author

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  • V. Deardorff, Alan

    () (The University of Michigan)

Abstract

This paper examines the effects on welfare and on patterns of trade of a reduction in costs of trading, such as might be the result of newly formed networks among residents of different countries with common culture or other ties. It argues that such a reduction in trade costs, even when it applies only to a particular bilateral trade route and may cause imports to be diverted from one source to another, must in the absence of distortions be welfare improving in the aggregate. On the other hand, such a change can indeed alter trade patterns distinctly, and they may also lower the welfare of particular countries. Examples are provided in which falling trade costs cause reversals of a country’s pattern of trade, and in which a country that becomes part of a trade-cost-reducing network that alters its trade loses as a result.

Suggested Citation

  • V. Deardorff, Alan, 2001. "Trade and Welfare Implications of Networks," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 16, pages 485-499.
  • Handle: RePEc:ris:integr:0174
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    Cited by:

    1. Alan V. Deardorff, 2014. "Local comparative advantage: Trade costs and the pattern of trade," International Journal of Economic Theory, The International Society for Economic Theory, vol. 10(1), pages 9-35, March.
    2. Aditya Rangga Yogatama & Fithra Faisal Hastiadi, 2015. "The Role of Democracy and Governance in the Enhancement of Indonesian Exports to the Organization of the Islamic Cooperation (OIC) Countries," Working Papers in Economics and Business 201504, Faculty of Economics and Business, University of Indonesia, revised Jul 2015.

    More about this item

    Keywords

    Gains from trade; Trade costs; Networks;

    JEL classification:

    • F10 - International Economics - - Trade - - - General

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