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Information costs, networks and intermediation in international trade

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  • Dimitra Petropoulou

Abstract

This paper is motivated by the observation that intermediaries play an important role in international trade. The matching role of intermediaries is examined in a pairwise matching model with two-sided information asymmetry, where intermediaries develop contacts. Intermediation expands the set of matching technologies available to traders, while convexity in network-building costs with respect to network size gives rise to both direct and indirect trade in equilibrium. The trade pattern depends on the relative responsiveness of the direct and indirect matching technologies to information costs, which for some parameter values generates a non-monotonic relationship between information frictions and trade.

Suggested Citation

  • Dimitra Petropoulou, 2011. "Information costs, networks and intermediation in international trade," Globalization and Monetary Policy Institute Working Paper 76, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:76
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    References listed on IDEAS

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    More about this item

    Keywords

    International trade ; Intermediation (Finance) ; Mathematical models;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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