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International Trade and Search

Author

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  • Pertti Haaparanta

    (Helsinki School of Economics)

Abstract

The standard model of international trade based on Dixit-Stiglitz theory of monopolistic competition originally developed by Helpman and Krugman is extended to allow for costly search and matching between producers of different varieties and retailers. This extension provides a new way of characterizing how the economy is divided in closed and open sectors. Trade policies will naturally have an effect on this division. The entry and exit of retailers and producers is modeled. It is shown that these (both gross and temporarily also net) flows (and the associated job flows) are affected by policies. Tariffs increase gross flows of retailers relative to producers. Gross flows will also be increased in the sector favored by policies. This provides a potentially fruitful hypothesis for empirical work. In contrast to the standard model, trade policies have also an effect on the scale of output by individual producers. Finally, the welfare effects of tariffs are surprising. Tariffs can improve welfare if they switch enough productive resources from the producers in the matching process relative to producers already matched and producing. This result is new to the literature.

Suggested Citation

  • Pertti Haaparanta, 2000. "International Trade and Search," Econometric Society World Congress 2000 Contributed Papers 0858, Econometric Society.
    • Handle: RePEc:ecm:wc2000:0858
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    References listed on IDEAS

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    3. repec:fth:iniesr:430 is not listed on IDEAS
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    Cited by:

    1. Jeffrey J. Reimer & Xin Zhang, 2018. "An economic model of search and matching in international trade," Review of International Economics, Wiley Blackwell, vol. 26(4), pages 784-800, September.

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