Intermediated Trade

44 Pages Posted: 22 Feb 2010 Last revised: 16 Jul 2023

See all articles by Pol Antras

Pol Antras

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Arnaud Costinot

University of California, San Diego (UCSD) - Department of Economics; Massachusetts Institute of Technology (MIT) - Department of Economics

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Date Written: February 2010

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

Antras, Pol and Costinot, Arnaud and Costinot, Arnaud, Intermediated Trade (February 2010). NBER Working Paper No. w15750, Available at SSRN: https://ssrn.com/abstract=1556115

Pol Antras (Contact Author)

Harvard University - Department of Economics ( email )

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Arnaud Costinot

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