Anonymous Market and Group Ties in International Trade

58 Pages Posted: 28 Dec 2006

See all articles by Alessandra Casella

Alessandra Casella

Columbia University - Graduate School of Arts and Sciences, Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

James E. Rauch

University of California at San Diego; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 1997

Abstract

When trade involves differentiated products, preferential ties to a group settled abroad facilitate an exporter's entry into the foreign market by providing information and access to distribution channels. This contrasts with the difficulties experienced by an unattached producer unfamiliar with the foreign environment. Inspired by the role of coethnic ties and business groups in East Asia, we build a simple general equilibrium model of trade that formalizes this observation. Output is generated through bilateral matching o agents spanning a spectrum of types. Domestic matching is perfect--every trader knows the type of all others and can approach whomever he chooses, but international matching is random--every trader lacks the information to choose his partner's type. However, group ties allow perfect matching abroad to a minority of individuals who have access to them and can decide whether or not to exploit them. We show that in the absence of ties the existence of informational barriers reduces the volume of trade. By increasing trade, group ties are beneficial to the economy as a whole, but have significant distributional effects. On average, group members benefit, but some may lose; non-members lose almost without exception, with the largest losses concentrated among those with the poorest domestic market niches.

Suggested Citation

Casella, Alessandra and Rauch, James E., Anonymous Market and Group Ties in International Trade (September 1997). NBER Working Paper No. w6186. Available at SSRN: https://ssrn.com/abstract=225943

Alessandra Casella (Contact Author)

Columbia University - Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States
212-854-2459 (Phone)
212-854-8059 (Fax)

HOME PAGE: http://www.columbia.edu/~ac186/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James E. Rauch

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
619-534-2405 (Phone)
619-534-7040 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
25
Abstract Views
772
PlumX Metrics