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General Trading Costs in Pure Theory of International Trade

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  • Marjit, Sugata
  • Mandal, Biswajit

Abstract

We use the HOS model of international trade to find a link between trading (including domestic trading or retailing) costs and pattern of trade, not just its effect on volume of trade. Even if we use symmetric iceberg type trading costs, unlike conventional unit cost approach, we generate relative price effects and prove that higher trading costs in labor-abundant countries will restrict volume of world trade by working against factor endowment bias and conversely for the capital-abundant nation if the trading sector is labor intensive and vice versa. Asymmetric trading cost between goods may have paradoxical output effects. Relatively capital-abundant country will be worse off with increasing trading cost, whereas once engaged in trade the labor-abundant country may gain from further increase in trading cost.

Suggested Citation

  • Marjit, Sugata & Mandal, Biswajit, 2009. "General Trading Costs in Pure Theory of International Trade," MPRA Paper 19290, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:19290
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    References listed on IDEAS

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    Cited by:

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    2. Adrian Wood (ODID), "undated". "A more general Heckscher-Ohlin model," QEH Working Papers qehwps185, Queen Elizabeth House, University of Oxford.

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    More about this item

    Keywords

    International Trade; Factor-intensity; General equilibrium.;
    All these keywords.

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • F1 - International Economics - - Trade

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