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International Trade and Search

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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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    1. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    2. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
    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. 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, January.
    5. repec:hhs:iuiwop:430 is not listed on IDEAS
    6. Matti Liski & Juha Virrankoski, 2000. "Bilateral C02 Trading," Econometric Society World Congress 2000 Contributed Papers 1312, Econometric Society.
    7. Kultti, Klaus, 2000. "About bargaining power," Economics Letters, Elsevier, vol. 69(3), pages 341-344, December.
    8. Ricardo Caballero & Muhammad Hammour, 1998. "Improper Churn: Social Costs and Macroeconomic Consequences," Working papers 98-11, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-973, October.
    10. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-1368, December.
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