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Social Networks and Trade Liberalization

  • Manish Pandey
  • John Whalley

We discuss how social considerations can affect the desirability of trade liberalization in a conventional small open economy model. We consider a representative family in which there are location specific network effects from interactions with other family members, such as joint consumption, joint emotional support, and coinsurance. The benefits an individual receives from the network they participate in are nonlinearly related to the number of family members located in urban and rural areas. Family members choose whether to locate in urban or rural areas and average and marginal network benefits differ. With differential network effects in urban and rural areas, in a model with traded urban and rural goods, free trade will no longer be the best policy. We show this through a numerical example, and suggest that the conventional economists case for free trade may need to be more nuanced once social considerations of this type are taken into account.

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File URL: http://www.nber.org/papers/w10769.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10769.

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Date of creation: Sep 2004
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Publication status: published as Manish Pandey & John Whalley, 2009. "Social networks and trade liberalization," Applied Economics Letters, Taylor and Francis Journals, vol. 16(17), pages 1747-1749.
Handle: RePEc:nbr:nberwo:10769
Note: ITI
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  1. Winters, Paul C. & de Janvry, Alain & Sadoulet, Elisabeth, 1999. "Family And Community Networks In Mexico-U.S. Migration," Working Papers 12907, University of New England, School of Economics.
  2. Marcel Fafchamps & Susan Lund, . "Risk Sharing Networks in Rural Philippines," Working Papers 97014, Stanford University, Department of Economics.
  3. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
  4. Carrington, William J & Detragiache, Enrica & Vishwanath, Tara, 1996. "Migration with Endogenous Moving Costs," American Economic Review, American Economic Association, vol. 86(4), pages 909-30, September.
  5. Keshab Bhattarai & John Whalley, 2006. "The Division and Size of Gains from Liberalization in Service Networks," Review of International Economics, Wiley Blackwell, vol. 14(3), pages 348-361, 08.
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