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International Trade and Search

  • Pertti Haaparanta

    (Helsinki School of Economics)

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    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.

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    File URL: http://fmwww.bc.edu/RePEc/es2000/0858.pdf
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    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0858.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:0858
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    1. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December.
    2. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," NBER Working Papers 5098, National Bureau of Economic Research, Inc.
    3. Davidson, Carl & Martin, Lawrence & Matusz, Steven, 1999. "Trade and search generated unemployment," Journal of International Economics, Elsevier, vol. 48(2), pages 271-299, August.
    4. Ricardo J. Caballero & Mohamad L. Hammour, 1998. "Improper Churn: Social Costs and Macroeconomic Consequences," NBER Working Papers 6717, National Bureau of Economic Research, Inc.
    5. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, August.
    6. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-73, October.
    7. Kultti, Klaus, 2000. "About bargaining power," Economics Letters, Elsevier, vol. 69(3), pages 341-344, December.
    8. Matti Liski & Juha Virrankoski, 2000. "Bilateral C02 Trading," Econometric Society World Congress 2000 Contributed Papers 1312, Econometric Society.
    9. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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