Working Paper: CEPR ID: DP1978
Authors: James E. Rauch; Alessandra Casella
Abstract: Incomplete information in the international market creates difficulty in matching agents with productive opportunities and interferes with the ability of prices to allocate scarce resources across countries. Resource-price differentials may not be eliminated and domestic resource supplies may have excessive influence on domestic resource prices. Information-sharing networks among internationally dispersed ethnic minorities or business groups can improve the allocation of resources, though at the same time they may hurt those excluded from the preferential information channels. When ties are denser between countries with small resource price differences than between countries with large resource price differences, however, such networks can worsen the allocation of resources and reduce the value of world output.
Keywords: trade; wages; networks; information
JEL Codes: F10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Incomplete information in international markets (D52) | Difficulties in matching agents with productive opportunities (J68) |
| Difficulties in matching agents with productive opportunities (J68) | Tax on trade (F19) |
| Group ties (C92) | Improved allocation of resources (D61) |
| Group ties (C92) | Better matching between producers (L15) |
| Better matching between producers (L15) | Increased efficiency (D61) |
| Group ties (C92) | Exacerbation of inequalities (I14) |
| Denser ties between countries with smaller resource price differences (F12) | Worsening resource allocation (D61) |
| Group ties (C92) | Harmful trade diversion effects (F14) |
| Harmful trade diversion effects (F14) | Reduction of overall world income (F61) |