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Intermediated Trade

Author

Listed:
  • Pol Antràs
  • Arnaud Costinot
Abstract
This paper develops a simple model of international trade with intermediation. We consider an economy with two islands and two types of agents, farmers and traders. Farmers can produce two goods, but in order to sell these goods in centralized (Walrasian) markets, they need to be matched with a trader, and this entails costly search. In the absence of search frictions, our model reduces to a standard Ricardian model of trade. We use this simple model to contrast the implications of changes in the integration of Walrasian markets, which allow traders from different islands to exchange their goods, and changes in the access to these Walrasian markets, which allow farmers to trade with traders from different islands. We find that intermediation always magnifies the gains from trade under the former type of integration, but leads to more nuanced welfare results under the latter, including the possibility of aggregate losses. These welfare losses may be circumvented, however, through policies that discriminate against foreign traders in a way that minimizes the margins charged by domestic traders.

Suggested Citation

  • Pol Antràs & Arnaud Costinot, 2010. "Intermediated Trade," NBER Working Papers 15750, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15750
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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